Bonds and private placements

Transcription

1 Bonds and private placements July 2016

2 1 The post-referendum world

3 The post-referendum world Cont d FTSE-100 index pushing new highs, despite its high bank constituents FTSE-250 (more domestic) holding up well 2

4 The post-referendum world Cont d Gilt yields tumbling (good base-line for borrowers?) Massive $: move (the single biggest immediate issue) 3

5 The post-referendum world Cont d Liverpool University At issue Pre-referendum Post-referendum Gilt yield 2.65% 1.73% 1.47% Spread 0.80% 0.62% 0.68% Total 3.45% 2.35% 2.15% 4

6 The post-referendum world Cont d Markets re-adjusting rather than panicking Awaiting company-specific news; trends may not become apparent until after the summer holiday period Credit rating agencies negative (what else would they be?) EIB tell us they remain a lender UK/US private placement investors tell us they remain open for business For Universities / Education: need to re-validate (adjust?) business plans / forecasts greater need to sell their credit story individual credit analysis will become more important 5

7 Classification: bonds vs. private placements Bond Private placement Investor type Institutions Institutions No. of investors c ( direct ) or 2-10 ( syndicated) Size 250m+ gets into index 10m to be worthwhile getting out of bed Maturity sweet spot 30 years years How to sell ( distributors ) 3 day roadshow, semi-public via Bookrunners (usu. 3) Flexible roadshow, private via Placement Agents (usu 1-2) Prospectus and Stock exchange listing? Yes No Credit rating(s)? Yes No Financial covenants No Yes (one or two) Identity of investors Unknown except by discovery Known Subsequent trading price Yes No Early pre-payment NPV remaining interest+principal at prevailing rates NPV remaining interest+principal at prevailing rates The above assumes an unguaranteed bond Additionally, bonds can be guaranteed by third parties, e.g. HM Treasury or monoline insurance companies 6

8 Issues to date Moody s Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Public bonds (Moody s ratings): Basic Credit Assessment State Support Uplift Final Credit Rating Cambridge Aaa n/a Aaa Manchester Aa2 +1 Aa1 Leeds Aa3 +1 Aa2 Cardiff Aa3 +1 Aa2 Liverpool Aa3 +1 Aa2 De Montfort A1 +2 Aa2 S&P AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- S&P ratings 1 : Final Credit Rating Kings College London AA- Nottingham AA- Lancaster AA- Sheffield A+ Recent unrated PPs: Edinburgh, Stirling, Coventry, Surrey Notes 1 S&P pre-referendum afforded universities a one notch uplift, they now note that universities still have a moderately high likelihood of receiving extraordinary support from the UK Government though this has a neutral impact on the rating 7

9 Most important factors Can you afford the VC s ambitions? defensive vs. offensive realistic assumptions Structure permanence of debt e.g shorter dated project specific debt vs. ultra long dated permanent debt stick with bank debt? Or e.g. off-balance sheet / student accommodation flexibility of on-balance sheet Covenants moving away from HEFCE format / squeezing into corporate format bespoke confidence of compliance Selling your credit the narrative / story-line absolute vs. relative brilliance Oxbridge / Russell Group is not the sole mark of credit quality 8

10 Project management It all starts with the Financial Model Project Sponsor and Project Manager Very clear credit story The table: Distributors (bookrunners or placement agents) Borrower Debt adviser Borrower s lawyers Investor(s) Investors lawyers Principal workstreams selling the credit : 30 page PowerPoint presentation life-long legals : Terms and Conditions issue process legals : multitude of documents Governance / Stakeholder management University Council HEFCE Existing lenders 9

11 Predictions Capital markets will remain open and rates will remain attractive The shine has slightly come off the Education sector, so it will have to re-sell itself to banks and debt investors This will need careful and bespoke credit stories and models, open to critical challenge The sector and its members will remain globally-important and of high credit quality 10