We are seeing a significant amount of interest from clients in exploring the private placement route – whether to pay for new development or re-finance historic debt or both.
Here we set out to highlight eight key factors when considering whether a private placement is the right option or not.
- Process –There are two different routes each with pros and cons. You can either approach a handful of investors directly to negotiate a deal in a similar process to bank funding (“direct approach”), or you can engage an agent or arranger to set up a roadshow and marketing process more similar to a bond (“agented” route).
- Size – Determine the size of the funding requirement at the outset. There is no set minimum or maximum for a private placement, but the average size is between £15-50m and the size may well determine the route. Also the larger the deal, the greater the number of investors likely to be interested which will provide competitive tension on the pricing and covenants.
- Deferred Funding – Whilst it is possible to obtain deferred funding, it will impact pricing and it is likely that at least a portion of the private placement will need to be secured at the outset. In any event, you need to have sufficient comfort that the security will be ready when you need it.
- Covenant-lite – Private placements are often described as being “covenant-lite” which means traditionally they have less business restrictions than a loan agreement but it is important to remember why. They are typically long term (25 yrs +), businesses can change over that time and they can be very costly to prepay as a result of the “Make-Whole” provisions. But the investors still need some level of protection, so for example they would not want you to change your business completely, they may want to restrict on-lending or investments in joint ventures. They typically allow for mergers provided they are solvent, remain an RP and have some comfort on the legal process.
- Documentation – This may look similar to your existing loan agreements or very different if the US style Model X Form is adopted, which is more likely if you want to attract US investors.
- Roadshows – Regardless of whether a formal roadshow or direct investor meetings are required, one of the keys to success is being able to sell the story of your organisation.
- Ratings – Are not a requirement but they may be helpful in attracting a wider pool of investors and better pricing.
- Timetable - Speed is of the essence for private placements to maximise pricing opportunities, so it is advisable to invest time before-hand making sure you are “charging-ready”.
Please contact Louise Leaver if you would like to discuss any of the above in more detail or if you would like some free training for your board on the private placement process.