Ferrero Group SpA, football club FC Barcelona and a Middle Eastern port have all used the US private placement market in recent weeks — a sign that this opaque way of raising money is becoming increasingly popular.
(Bloomberg) — Ferrero Group SpA, football club FC Barcelona and a Middle Eastern port have all used the US private placement market in recent weeks — a sign that this opaque way of raising money is becoming increasingly popular.
The range of different companies and size of the debt sales, topping at least $500 million, are evidence that name-brand borrowers and investors are becoming more comfortable with navigating private markets.
While data in the closed-door industry is hard to come by, the consensus among experts is that it’s steadily growing.
Private placements, also known as high-grade private debt, allow companies to directly tap institutional investors and bypass volatile public credit markets that have been reeling from soaring interest rates.
Legal & General Investment Management estimates global issuance at £150 billion ($189 billion) and investors like Apollo Global Management Inc. are making a push into the market.
It “provides borrowers with an availability of capital, certainty of execution in a controlled manner with good ongoing engagement from investors,” said Nick Bamber, head of private debt at Legal & General Investment.
Private placement is a industry term for when top-quality companies borrow directly from institutional investors, and is also known as high-grade private debt.
It gives firms — often family-owned or privately run — the ability to borrow money for long periods without the need for credit ratings or the disclosure requirements of publicly issuing bonds.
In return for these perks, borrowers pay a premium over publicly traded bond markets, with fixed-rate pricing currently ranging between 5% to 6.5% for investment-grade issuers, according to Bamber.
Firms may also need to offer better protections to investors to compensate for the additional risk.
In the case of FC Barcelona, the debt was structured with maturities between five and 24 years, Bloomberg reported, helping the company avoid a so-called maturity wall of debt coming due all at once.
Ferrero Group SpA is also set to sell debt at a range of maturities, people with knowledge of the matter said. The company didn’t immediately respond to a request for comment.
The private placement market has also gained some big supporters.
Marc Rowan, chief executive officer of Apollo Global Management, said the firm has made a “really big push into private IG.” Because deals are for high-grade borrowers, it differs from the private credit market for leveraged loans and sub-investment grade borrowers that boomed last year, Rowan explained in an earnings call on Tuesday.
Some borrowers are also attracted to private placements because of the lack of disclosures required.
“Privately owned companies will generally prefer private debt markets,” according to Robert Busby, head of private placements at NatWest Markets.
They are “typically exempt from registration requirements and the issuers can keep their financial information private,” he said, adding that funds can be raised at below-benchmark sizes across a range of tenors.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.
