Get Geared Up: 10 Practical Ways to Prepare for a Private Placement

In the last couple of years, there has been limited consideration of private placements as a route to raising new finance. But as commentators begin to mull the potential for underlying interest rates to fall in the coming months, we think private placements (“PPs”) might be worth another look.

If you are considering this funding route, how might you prepare? We’ve put together a list of 10 things to consider

1. Review your long term debt profile

There are a number of questions to ask at an early stage including:

• Does securing of a significant fixed rate debt tranche(s) fit within the context of your existing borrowing and wider treasury management objectives?
• Is your funding requirement relatively immediate or would you require a structure to enable a form of deferred drawdown?
• Are you content to fix debt costs at the pricing likely to be available in the market?
• Are you looking for debt of a particular tenor or would you remain flexible?

2. Assess the options

Private placements may appear to suit you but have you assessed all the options? Short term RCF and re-appraise in a few years? Medium term bank debt? Charitable Bonds? Capital Market Aggregators (if applicable to your sector)? Bond issue? Medium Term Note Programme?

Does your funding requirement meet the size requirement of the placement market, typically at least £20m, more for some investors?

Increasingly clients want to make sure their borrowing aligns with wider strategic objectives, particularly those linked achieving Net Zero. Have you considered a ‘Sustainability’ or ‘Green’ PP? What ‘Use of Proceeds’ evidence would you be able to offer to lenders and would that align to ICMA principles? What additional preparation or ongoing monitoring would it entail?

3. Understand the timetable

Lead agents will typically advise that a transaction can be completed in 12 weeks. But that assumes you have appointed all advisers, your governance process has been considered, you have gathered all the relevant information and are ready to launch the process. Don’t under-estimate the time required in advance of this.

4. Gather information

Consider the underlying information you need to provide lenders. Where secured PPs are typical for your sector (for example, Housing Associations), take the time to review the nature of your unencumbered assets/stock, consider the number of sites that may need to be included as security and review that this broadly reflects the underlying nature of your overall stock. Ensure you have all title and other legal documentation available in advance of the process starting.

Other clients should consider other relevant performance data: for universities this might include student recruitment, international recruitment pathways, international student composition, applications data or bad debt rates, alongside detail on estates and other strategies.

It is often overlooked, but getting this in place will remove a principal barrier to a smooth placement process.

5. Review your existing covenants and loan documentation

Consider whether these permit additional borrowing via a placement and forecast your future covenant compliance post placement. Investors will focus on the existing borrowing covenants and are likely to require equivalent protection. Renegotiation of existing facilities should be completed well in advance of launching your PP process. For example, in the social housing sector, are you looking to move away from EBITDA-MRI?

6. Consider your governance processes in advance

Any private placement is likely to be a significant transaction for your governing body to consider and approve. Though not inherently complicated, they are often new to senior stakeholders.

Ensure you engage them early and that they understand the Note Purchase Agreement, transaction structure, potential implications of borrowing from non-UK institutions, the pricing process and the roles played by lead agent, investors, issuer and investor counsel, the security trustee etc. Consider putting in place a delegated authority process or a Board Sub-Committee to allow for the short decision making and approval processes a PP process requires. This will help facilitate the smooth execution of your PP.

7. Develop your ‘Plan B’

There continues to be significant investor appetite for private placements across a range of sectors but there remains volatility in long term gilts and pricing expectations may change; not all placements proceed. Know what alternative routes could be pursued in the short and medium term to ensure your organisation can continue to deliver its strategy.

8. Consider soft engagement with investors

Early market engagement can allow you to reflect on your organisation’s strengths and weaknesses from an investor perspective, identify any matters requiring further management consideration, develops a strong profile early and provides feedback that will assist you in informing your governing body on the deliverability and pricing for any PP.

9. Ensure available internal resources

Additional financial forecasting, providing data for investor presentations, governing body briefings, investor meetings (and dry runs of these), delivering updated property valuations, collating background information, regulator engagement – it all takes internal management time and needs to be considered in advance. Consider how the timing of any PP process might align with other significant reporting and forecasting events.

10. Get experienced and proactive financial advice early…

…but we would say that!

Links to some of our recent credentials for private placement transactions include:

University of Hull – Private Placement – QMPF

Sheffield Hallam University – Private Placement – QMPF

King’s College London – Private Placement – QMPF

Eildon Housing Association – QMPF

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