US Private Placement Survey reveals change in tenor preference

21 June, 2011

National Australia Bank (NAB) US Private Placement (USPP) Survey for the first quarter of 2011 reveals a noticeable change in tenor preference in comparison to year-end 2010.

The survey found that 26% of investors prefer a 7-10 year tenor in comparison to 48% for year-end 2010. Similarly, the survey revealed an increase in preference for 15 year tenor from 7% in 2010 to 14% for this quarter.

Geoff Schmidt, NAB's Global Co-Head of Debt Capital Markets, said the change to longer dated tenors reveals a marked change in investor appetite coupled with the desire for higher yields.

"Issuers have been selling the largest volume of long dated maturity bonds in three years as the slowing US economy and market volatility globally pushed yields on debt to the lowest level since November.

"This drive in long dated issuance is being met by investor demand as they seek greater yield through extending their investments along the curve," Mr Schmidt said.

The latest USPP Survey was distributed to 50 of the market's most prominent investors with over 50 per cent responding. The majority surveyed were US life insurers who typically invest between US$300 million and US$10 billion in the USPP market every year.

From the perspective of the investors 62% view Australian investment favourably which is slightly lower than the 66% recorded for 2010.

An additional question was added this quarter on level of demand for Real Estate Investment Trust (REIT) issues, which revealed that investor appetite for property sector credits is increasing.

James Waddell, Director, Capital Markets Origination, NAB said the renewal in investor interest is evidenced by a number of property transactions that priced in 2011.

The survey found that 62.5% of investors showed 'some interest' in REIT issuers and 37.5% stated that the market was 'near capacity'.

In regards to the average bid size, 43% of respondents ordered $20-$40 million, 29% ordered $10-$20 million and 14% ordered $40-$70 million. Interestingly, the bid sizes are an exact reflection of preferences for year-end 2010.

When analysing investment volumes 48% of respondents indicated that they are below or at plan relative to their investment budget.

"This particular metric provides excellent insight into current market liquidity and investors' capacity to participate in new transactions," Mr Waddell said.

The market remains on track for a record year of issuance with over US$20 billion priced in 20111 so far. The strong deal flow is expected to continue in June, kick-started by several deals that are currently in the market.

Commenting on the survey, Mr Waddell said the results are useful for Australasian borrowers. "We now know answers to questions that you cannot glean from straight deal execution."

Please see pdf transcript of media release below for a sample of the results:

For further information:

Elisha Vincent
M: +61 (0) 429 566 676

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