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By John Goff
L-3 Communications announced on
Tuesday that it intends to issue $750 million of senior notes in a private
placement. The defense contractor aims to use the net proceeds from the 144A
offering to redeem senior subordinated notes and repay a $650 million term
loan.
The aircraft maintenance
specialist offered few other details. But a zoom-in on the private placement
market reveals a whole lot of nothing going on. Indeed, predictions that
private placements would help fill the liquidity gap wrought by the credit
crisis have turned out to be way off the mark.
In particular, equity private
placements have been few and far between. Earlier this month, Natcore
Technology, a Vancouver-based energy specialist, completed a non-brokered
private placement that raised aggregate gross proceeds of about $1.2 billion.
Proceeds of the placement went to the company's R&D activities for quantum
dot tandem solar cells. Those cells apparently have the potential to double the
energy output of traditional solar cells.
That’s a lot more exciting than
the activity in the 144A equity market as a whole. According to Thomson
Reuters, companies have come out with 51 equity and equity-related private
placements in the U.S. this year, raising a paltry $22.5 billion. In 2008 -- not
exactly a banner year for capital-raising -- there were 217 equity private
placements. Those deals generated close to $100 billion.
And in 2007, companies raised
nearly $160 billion in 582 equity private placements.
Industry watchers say 144A issuance
will likely pick up in the final quarter of the year. They point to recent
hires at banks, which appear to be bulking up their private placement
operations.
If so, expect most of the action
to be on the debt side. Not surprisingly, the lion’s share of the big 144A
offerings this year in the U.S. have been debt issues, particularly borrowings
by energy companies.
Australian utility ETSA, for one,
closed a $500 million private placement of senior notes in July. Likewise,
Minnesota-based power-producer Great River generated $400 million in a private
placement of first-mortgage bonds in August. And Tri-State Generation raised
$300 million in a private placement of senior notes in March.
In fact, 2009 has been a better
year for debt private placements than 2008 -- at least as far as volume goes.
Institutional buyers seem far more interested in large deals this year.
The numbers tell the tale. Through
mid-September, there have been 573 debt issues raising $462 billion in
proceeds. In 2008, companies raised less cash on more deals: $336 billion was
generated off 714 private placements during the year.
One of those big offerings:
Cenovus Energy in September completed a $3.5 billion 144A offering of senior
notes. The five-year notes carry a 4.50% coupon, while the ten-year notes carry
a 5.70% coupon. Cenovus locked in $1.4 billion in thirty-year notes at 6.75%.
It’s a sizable deal, and one that
means the subsidiary of EnCana Corp. can eliminate a $3 billion bridge credit
facility. But even with a pick up in the private placement business over the
next three months, the 144A market probably won’t return to pre-recession
levels until next year. And what where those levels?
In 2007, during the height of the
economic boom, public companies and private entities raised over $1 trillion from
2,736 straight debt private placements.
Don’t expect those
kinds of numbers when this year closes out.
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