After a pandemic-enforced hiatus, NAB’s First Look conference was back in Melbourne and Sydney for 2022, as a large group of major US Private Placement market investors flew to Australia to meet current and potential issuers. 

For most of the US guests, this was their first international trip after a long line of video calls in a relationship business that thrives on making lasting connections in person. 

“Issuers and investors are keen to do business with each other after a few years of a really challenging environment,” said NAB’s Geoff Schmidt, arriving from New York with his team.  

“The investors get a ‘first look’ at NAB’s next generation of issuers and everyone here is excited about making those connections that could, in many cases, be lifelong.” 

Schmidt, who is NAB’s Executive, Corporate Finance, US said the impetus behind First Look was to turn a traditional conference structure on its head by prioritising networking between buyers and sellers as the major activity alongside the rest of the program. 

The one-to-one issuer/investor meetings are run in conjunction with expert panels in the main room that are aimed at giving highlights across key sectors like infrastructure, property and utilities, and unpacking the USPP market for any first-timers. 

Schmidt said the US investors already had significant stakes in Australia and were keen to see their investments on the ground, with a series of site visits in both cities as part of the week-long tour. 

“We’re proud to have been able to do this again in what is a truly unique conference,” he said. “It’s a very human experience.” 

Flexible, long-term investment 

Investors in the USPP market are predominantly insurance companies in the US, with premiums they need to deploy across long-dated tenors of 10, 20 or even 30 years to match their liability books.  

Private placements provide critical diversification for these portfolios for both general accounts and third-party funds under management, with the investor pool growing in recent years to include pension and sovereign wealth funds.  

Advantages for the Australian and New Zealand issuers attending First Look include being able to access such a steadfast market that these long-term funding relationships bring, plus the flexibility to offer large or small tranches, with clear demand for both. 

Other attractions for issuers are the delayed draws of three months or more from pricing the transaction – known as a market standard “three for free” – as well as investor FX capabilities allowing funding to be deployed directly in a foreign currency, like Australian dollars. 

Schmidt said “The investors are showing their willingness to put up capital by coming down here. We have a dozen investors, most of whom have flown 17,000km, here with us to show support for this market.” 

Documentation 

For those wary of any extra US documentation and reporting hurdles, First Look this year included two special legal “bootcamp” sessions showing how the private placement process operates with vastly reduced complexity compared to a public issuance.  

Attorney Bruce Dailey, a partner at Sidley Austin, said the market has been set up to ensure easy navigation between parties and came without the reporting obligations of a US-registered public offering. 

Representing the investor side, Chapman and Cutler partner Michael Harrison said the overall process was more streamlined than is required for a public offering because the nature of private placements means investors have access to the agent and issuer during the marketing process, which enables them to do their own diligence. 

Schmidt said NAB sought to position the credit well so the book is oversubscribed, with the team also focused on expert distribution within their specialty sectors. 

NAB Associate Caroline Giaimo said the USPP marketing process generally involves talking to about 60 or 70 active investors for each specific type of transaction from a pool of more than 100 in the growing market. 

Giaimo said a Private Placement Memorandum (PPM) was the main offering document. 

There is also a growing market trend for issuers with an easier credit story to use an investor presentation slide pack which boils the information into the bullet points and graphs needed for a one-hour call. 

State of the market  

A key feature of the USPP market is both the scale and flexibility of the institutional investors involved. Of the 60 or so active participants NAB talks to day-in and day-out, about half are large institutions capable of bidding $US100 million or more on a single transaction. 

Average transaction size so far this year has been $US213 million, up from $US176 million in 2021. While the biggest recent single bid the team has seen was $US400 million, the rule of thumb is to secure three investors for every $US100 million needed.  

NAB Associate Director Allen Ying said given the diverse range of transactions and appetite it was all about positioning credit well and finding the right investors to fit an issuer’s financing needs. 

“The 30 that can provide a $US100 million or more are critical to building out the book and providing that base layer of support for transaction,” Ying said. “The 30 that are small to medium size are really critical … because they round out the book and provide flexibility around pricing, tenor and currency.” 

He said the overall stability of the market was on display in February this year in a NAB-led transaction which priced just as the Russia-Ukraine conflict was breaking out. 

“Ultimately the transaction was priced that morning without a hitch, with no delay, despite the extreme volatility that we saw due to the geopolitical events. I think that’s a great example of what this market represents for issuers.” 

Fellow USPP Associate Director James Bennett said while the average transaction size was up this year, the total volume of around $US61 billion to date was about 28 per cent off the pace for the same time last year. 

“The interesting thing is that the market is down but we’re seeing really strong appetite and participation from investors,” Bennett said. “On NAB-led transactions over the last 12 months our average oversubscription rate is 3.6 times. We’re seeing really strong demand continuing.” 

Factors for issuance being down this year were generally sector specific, amid further hesitancy given current rate increases and associated volatility. It comes after 2021’s record year featuring pent-up demand and some issuance being brought forward given headwinds. 

Property in the spotlight 

Looking geographically, Australia is a market still punching above its weight, but at 5.6 per cent of the total this year it is also down from a traditional 10-12 per cent. Australia is often competing with the UK for the number two spot being US domiciled issuers. Reasons include less favourable cross currency swap markets, volatility on rates, and a very accommodative banking system alternative, Bennett said.  

Of note, there has been almost no issuance from the Australian property sector in 2022 compared with about 15 per cent of total property issuance pre-Covid. There is still strong property issuance in other regions however, with property making 23 per cent of the total USPP issuance so far this year. 

“Property is a really interesting sector because following the onset of COVID-19 in 2020, property issuance fell by about a third as people waited to see how lockdowns played out. But since then, there’s really been huge demand,” Bennett said.  

With 76 per cent of the issuance coming from the US, investors are looking to diversify their portfolios into other regions, he said. 

The numbers show the diversified and industrial subsectors continue to be the most active, collectively making up around 65 per cent of total property issuance. But as appetite has increased, pure play retail issuance is already up 300 percent vs 2021, with demand also flowing into more specialised property like self-storage, data centres and healthcare assets. 

Overall, NAB’s US visitors said they were pleased to be back in person and looking forward to a trend of more in person roadshows in future, while watching the further development of sustainable finance across sectors. 

NAB is proud to be named US Private Placement (#USPP) House of the Year at the KangaNews Awards 2022