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Private Fixed Income Securities An Overview Rick Long – Drake University March 27, 2012.

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Presentation on theme: "Private Fixed Income Securities An Overview Rick Long – Drake University March 27, 2012."— Presentation transcript:

1 Private Fixed Income Securities An Overview Rick Long – Drake University March 27, 2012

2 Overview of Private Fixed Income Description of the asset class Who are the issuers and why this market? Who are the investors and why this market? Current Market 2011 - 2012

3 Description of Private Fixed Income Securities Bonds, exempt from SEC registration Negotiable terms and covenants Issued as traditional or 144A private bonds Predominately investment grade securities Active secondary market

4 Issuers Privately and publicly held companies U.S. and Non-U.S. companies Large and middle market companies Utilities, industrials and energy companies Project financings, equipment financings, credit tenant loans

5 Issuer Advantages Efficient market for unique transactions Access to U.S. fixed income market Diversification of investor base Stability of investor base

6 Past Issuers Mars Inc.NFL Heineken NVPatterson Dental Costco JapanTranspower Ltd Dairy Crest Group plcH. E. Butt Royal PhillipsH.B. Fuller Tortoise FundsCargill Casey’s General StoresHy-Vee

7 Investors Insurance companies Pension funds Others including banks, investment companies, and hedge funds

8 Investor Advantages Enhanced income Better credit protection Diversification Flexibility of terms

9 Annual Traditional USPP Volume

10 U.S. vs. Non-U.S. Issuers

11 U.S. vs. Non-U.S. Over Time

12 Issuance by Sector

13 Deal Type

14 Issuance by Maturity

15 Until the sovereign debt woes are resolved (or at least an agreed upon plan of attack is developed) it will likely be more of the same in terms of volatility and low Treasury rates Oversubscriptions will remain very common as investors continue to hold substantial funds for private placement investments BofAML expects that issuers will increase their final issuance amounts with greater frequency especially if they believe rates will be increasing 2012 could see the private market reach the $50 billion threshold Most investors have stated that they are increasing their investment budgets by 5-15% for 2012 Credit spreads will continue to follow the lead from the HG public markets, the belief is that credit spreads will decline during 2012 if rates remain low. The theory being that public market investors have a lot of cash on the sidelines targeted for the new issuance calendar. Accordingly, most new issuance will likely see significant levels of demand which typically results in tighter credit spreads as competition intensifies. Note: if Treasury rates increase then we could see a greater decline in credit spreads The shift away from risk during most of 2011 caused the weaker NAIC-2 segment (both the rated issuers but also the smaller unrated names) to generate lower issuance totals and above average credit spreads for those that did navigate through the market BofAML expects that this trend will continue into 2012 but we could see shift in investor sentiment if more of these deals start to get priced in the market (it’s the old adage of “don’t care until they start missing quality priced deal flow”) – BofAML believes that there are many transactions in this category that went either unfunded or to other markets. There are great opportunities in the smaller unrated names as most have: (i) high quality financial ratios despite less scale; (ii) a history of strong financial performance; (iii) solid business plans with strong management that have allowed them to develop their product(s) and build defendable market niches; and (iv) decent market shares with a long operating history OUTLOOK FOR 2012

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