Asset finance and leasing is in a growth phase in Australia as organisations seek a capital-effective way to modernise and upgrade across a broad range of asset classes and industries.
![New lease on life with future-fit asset finance](https://wsrv.nl/?url=https://business.nab.com.au/wp-content/uploads/2024/08/af_leasing_innovaton_article.png&w=40&h=40&blur=5&q=70&output=jpg)
![New lease on life with future-fit asset finance](https://business.nab.com.au/wp-content/uploads/2024/08/af_leasing_innovaton_article.png)
The US Private Placement market is seeing a surge in investor demand, with favourable conditions for issuers and an upswing in credit across many sectors, customers at a special NAB event series have heard.
When NAB’s New York-based team of US Private Placement market specialists were last visiting Australia together in 2022, the world was newly facing into the fallout of the Russia-Ukraine crisis and the Federal Reserve’s rate-hiking cycle.
Arriving again in 2024, with a group of major US investors here to meet local issuers at NAB’s “First Look” event series, the message was clear: the market today is ready for business.
“Market conditions haven’t been this good in four years,” NAB Executive, Corporate Finance US, Geoff Schmidt said, touching down for the flagship Melbourne and Sydney US Private Placement (USPP) meetings.
“Deal sizes are almost two times what they were at this time last year and they are coming in from all parts of the world. Transactions are routinely four to six times oversubscribed, at the tight end of price guidance. The investor base has also added a lot of new players, so their competition is fierce, which is great for issuers.”
First Look features multiple one-to-one meetings with current and potential issuers and investors, alongside marquee presentations on market insights and trends across sectors.
In a digital and hybrid world, the importance of face-to-face networking with long-term, relationship-driven investors is central to the USPP market’s success, Schmidt says, and this is mirrored in the meetings held in Australia.
“Any time you put buyers and sellers together, good things happen in the bond market and so that’s the main motivation,” he says. “First Look is about investors meeting the next generation of NAB issuers and making those connections together.”
Market features
Investors in the USPP market are predominantly global insurance companies with operations in the US, with insurance 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.
Because of specific exemptions in US Securities law, issuers can raise funds at rates similar to the US Public Bond market, but with far fewer regulatory requirements, such as SEC registration. The streamlined process and documentation mean a first-time issuer can potentially raise funds in as fast as eight to 10 weeks and a repeat issuer can complete an offering in about five or six.
Special USPP features include the routine delayed draws of three months or more from pricing the transaction – known as a market standard “three for free” – and the growing investor foreign exchange capabilities which allow funding to be deployed directly in an issuer’s “functional” currency, like Australian dollars.
“We call the three elements of delay, currency, and tenor ‘the trinity’ because they are often found together in a single offering, and they are supremely powerful for solving many corporate finance objectives of issuers,” Schmidt says.
The overall process is more streamlined than is required for a US public offering because the nature of private placements means investors have access to the agent and issuer during the marketing process and can do their own diligence, he says.
Schmidt says NAB in the agent’s role can act as a firewall, with his team there to get the best price and terms for the issuer while maintaining good relationships with investors as they negotiate the finer points ahead of the bid.
The best way to do this is to position the credit well so the book is well oversubscribed, he says, with the team focused on expert distribution within their specialty sectors.
Schmidt says while many sectors are in a credit upswing across different regions, one of the hopes of the investors visiting Australia was to generate more deal flow out of certain segments that had been quieter recently, like property.
While Office REITs remain difficult because of ongoing uncertainty around future working trends across different geographies, retail, industrial and diversified property investments were all in demand, with build-to-rent also an area to watch as it develops, he says.
Deal environment
Updating guests on the state of the market in 2024, NAB USPP team member and Senior Associate Director James Bennett said after some dislocating geopolitical and industry events over recent years, Bloomberg’s one-year volatility index was now tracking at the lower end of the scale. At the same time, its BBB 10-year composite index showed spreads had come in around 45 to 50 basis points since October 2023.
“What that means for issuers is this is one of the best times to come to market that we’ve seen in at least four years – probably since pre-Covid,” Bennett says, noting some issuers had pulled forward their refinancing ahead of potential further disruption later in the year with the US elections stepping up.
The market was also seeing heightened investor demand, partially driven by investors who had not deployed as much capital as they would have liked since 2022 playing “catch-up”. Another demand factor is the feeling the rate cycle is at its peak, with investors seeking yield wanting to lock in at current levels.
“Since the spread is relatively tighter than it would have been six months ago, it’s a good time for investors to be locking in long-dated paper,” Bennett says.
By the numbers
Geographically, the US still makes up most USPP transactions so far in 2024, at 53.7%, followed by Germany (12.9%), the UK (11.7%) and Australia (11.3%), Private Placement Monitor and NAB data shows. Bennett says Australia’s performance has reverted to more of its historical norm after falling to around 7% to 8% for the previous two years.
“We expect that to continue to be the case throughout this year, as the USPP market has become much more attractive on a spread basis as the cross-currency swap has moved in favour of the Australian issuer,” he says.
At a sector level, Bennett says there has been far less issuance in the property and financial sectors this year – making up 12% and 8% of the market respectively so far, compared with about half the market combined in 2022.
For property in particular, pricing in the USPP market for local issuers has not been as attractive as bank debt and the Australian medium-term note (AMTN) market, he says.
“It’s something that we think will certainly recover. It’s just going to take a little bit of time as investors see how the world adjusts post-Covid in the new work from home environment.”
Utilities at 22% is the biggest sector for USPP issuance so far this year, followed by infrastructure at 18% and consumer and industrial which are each at 15%.
Bennett also notes deal-size is significantly up this year, as a number of the new entrants are now ready to deploy capital at scale. He says NAB deals have averaged about $US500 million and more over the past several months, with some other transactions observed in the market going beyond $US1 billion.
“It’s a deep pool of capital in the US and we expect that to continue to be the case for the remainder of the year,” he says. “There’s certainly a large capacity to do big deals here.”
Need to raise capital in 2024? Discover how you can take advantage of the market by reading NAB’s guide to the US Private Placement market.
Request a copy via email© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.