Private Placement Memorandum PPM

Private Placement Memorandum PPM: what is the view today?

The private placement market, of which a private placement memorandum or PPM is used to raise capital, is growing stronger since the recession hit. There has been recommended revisions to the private placement market, namely to the Regulation D and 144A spheres, where the Dodd Frank Act, followed by the JOBS Acts, has offered amendments to certain features. These areas, Reg D and 144A, are some of the most popular avenues to raise debt and equity capital, and indeed most investment capital given to entrepreneurs or business most likely falls under one of these categories.

Regulation D

Regulation D, or Reg D, is the most popular rule for those seeking capital. Reg D has flexibility and offers both the entrepreneur and investors certain rights or protections when seeking capital for their business.

144A

144A, or Rule 144A, is popular for both debt and equity offerings as well, however a 144A offering is more popularly associated with raising debt capital via debt offerings, or bond offerings. Bonds or notes are a popular way to raise under 144A.

Regulation S

Regulation S, or Reg S, is another method of raising capital albeit under different rules. 144A allows one to raise from US investors or in the US. Reg S is for ‘offshore’ offerings, or non-US investors. It is common as well for a company to issue both 144A and Reg S notes or bonds simultaneously. If so, a company would need to obtain both a CUSIP or ISIN number for the 144A and a separate CUSIP number and ISIN code for the Reg S.

PPM.net can assist with your Reg D, 144A and Reg S offerings.

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Spain is about to offer $2 billion 5 year 144A Reg S note. The 144A aspect of the offerign will be offered to US investors, mainly QIBs, while the Reg S portion of the note will be offered to non-US investors, as Reg S is offshore, meaning outside the US.

The last time Spain issued major debt, whether 144A or Regulation S, was in 2009. Barclays, Citi, Santander and Societe Generale are managing the sale.

Lithuania Sells $234 Million of Debt in Private Placement

Many ask why a private placement memorandum is referred to as a ‘ppm’, or simply PPM. The issue that has arisen is that a PPM, though the context for raising capital not withstanding, can get confusing. That is because a ppm has many meanings for many different industries. A PPM can refer to paper and software companies and much more. However, in the context of raising capital, using a business plan, finding investors, and presenting, the PPM is the most common term used by entrepreneurs and investors. Instead of saying ‘private placement memorandum’, or referring to one’s document as an offering memorandum, PPM is much easier to say and faster, and many know the term. If not, use private placement memorandum and PPM in a sentence, without being condescending. Say something like “here is my private placement memorandum, or my PPM”. Assume the investor knows what a PPM refers to, however say it like he may not, without being assuming. Yes, tricky. But it can help in your investor pitch.

The PPM is the single most important document, along with the company’s business plan, when seeking capital. If the business plan is the vision of the company, or the guidebook for success, the PPM, or private placement memorandum is the document that tells investor what he/she will receive in return for their investment.

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French firms tap private US lenders as banks run dry

* U.S. private placements by French firms 3.1 bln euros

* Rise in issuance a sign of banks’ lending retreat

* French private debt market still in infancy

* Advantages include lengthy terms, lower rates

PARIS, (Reuters) - Listed on the French stock market based in a suburb of Paris, mailroom equipment maker Neopost is an unlikely trailblazer in international debt markets.

But by tapping the U.S. private debt market, it has shown the way for a growing band of small and medium-sized French companies that need dollars to do business in the United States.

France’s own banks are increasingly unwilling or unable to provide such funding and are cutting back lending across the board in austere times.

Such placements by French companies hit a record $3.1 billion in the first half of the year, up from $825 million for all of 2011, according to Thomson Reuters data. That is the highest of any European country aside from the UK.

Companies with global operations, like Neopost, are looking for places to borrow dollars to fund activities such as leasing.

Borrowers ranging from supermarket chain Auchan to industrial gases group Air Liquide also seized the opportunity to borrow hundreds of millions of dollars at low rates from long-term investors: mostly insurers struggling to sqeeze adequate returns from traditional bonds.

The private placement rush,  which is conducted with a private placement memorandum or PPM, is in part a reflection of French banks’ own difficulties in securing dollar funding since late last year and is part of a wider trend of European borrowers cutting their dependence on lending from banks trying to shrink their balance sheets.

DRIVE TO DIVERSIFY

French demand has been a big chunk of a wider spike in European corporate use of U.S. private placements, which stands at 36 percent of a market valued at $48.2 billion so far this year.

“The diversification away from relying too heavily on bank lending has been a driver of issuance in this market,” said managing director in private capital markets at Barclays Capital, adding that some of the deals stem from last autumn, when a crisis of confidence at French banks convinced some borrowers they should look for funding elsewhere.

Private placements and PPM are also a godsend for companies that lack the credit ratings generally required to sell bonds, though that formerly stringent requirement has been loosened in some cases as the bond market has heated up in recent months.

French companies borrowing in the first half paid interest rates from 2.65 percent to 5.5 percent.

Their thrust into the U.S. private placement market is also a product of the lack of a strong French version of the U.S. 144a market and German Schuldschein equivalent, which allow unregistered securities to be sold to institutional investors.

Domestic banks and insurers have made moves to create such a market in recent months - insurer AXA, for example, struck lending joint ventures with banks Societe Generale and Credit Agricole.

BNP Paribas also recently announced that it was raising a fund to provide loans to small and medium-sized enterprises (SMEs), but in France such efforts remain embryonic.

SHIFTING LANDSCAPE

Most of all, the U.S. private placement boom is emblematic of a seismic shift in Europe, where SMEs have always been able to rely on their banks for credit, but fear they will not be able to for much longer.

“The banks in Europe are going to shrink,” said one U.S. private placement market source, speaking on condition of anonymity. “It’s going to happen because there’s not enough equity for all of them to become adquately capitalised enough and compliant with Basel III (bank capital rules).”

While the vast majority of French businesses still finance themselves through bank loans, in stark contrast to the United States, where most financing happens through bonds and other market sources, the landscape is shifting.

By this past summer 36 percent of French corporates were getting their funding from market sources, up from 32 percent the summer before and 27 percent in 2008, according to a recent Deutsche Bank research report. Market funding for French companies soared 15.5 percent in August, while bank debt edged up 0.9 percent, according to the same report.

U.S. private placements by French companies such as Faiveley Transport and Essilor International in the first half also reflected how market turmoil made it hard to access the conventional bond market. Since the bond market has moved into overdrive this autumn, the pace of private placements could ease in the second half, but it’s likely to remain strong in the years go come.

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LONDON, Sept 19 (IFR) - Ukraine (B2/B+/B) has mandated JP Morgan, Morgan Stanley, Sberbank CIB and VTB Capital for a USD-denominated 144a/Reg S offering. A transaction may follow as early as today, subject to market conditions.

Ukraine raised USD1bn through a private placement of a two-year bind via VTB Capital earlier this month. In July it priced a USD2bn five year deal via the same leads at 9.25%.

Writing a business plan is important for any start-up or expanding company in two respects. First, business plans serve to define and legitimize the business and its prospects in the eyes of others. Secondly, a business plan serves an important purpose within the business, acting as a guide and route to future growth and success.

For those outside the business, a business plan is viewed as an entry-level requirement in order for the venture to be considered as a serious enterprise. This is especially important when seeking capital, whether it be seed capital or investment for further growth. A business plan will be necessary to gain the confidence of those who would invest in the business, whether the method of investment is via grant, SBA loan, a bank, an angel investors or a venture capitalist. Ultimately, outsiders will only put their money into a venture if they understand why the business exists, how and where it operates, how it finds customers, who its competitors are and, importantly, whether the management team is competent and effective. In short, a good business plan plainly lays what a business does and how it will be profitable.

Looking internally, a business plan acts as a road map to success for the management team. Undertaking a business venture can be complicated and hectic. Writing a business plan forces the entrepreneur to consider all aspects of the undertaking in advance and helps with follow through once the enterprise is up and running. A good business plan will help an entrepreneur stay focused through each phase of the business, including defining the company, researching the market and competitors, delegating tasks to execute the plan, calculating costs and estimating revenues.

Having a thorough understanding of these aspects is essential both before the launch of the business and during its operation. In advance, it helps both the management team and outside investors assess whether the business will be profitable and whether its goals are achievable. A business plan helps insure that everyone involved has a realistic idea of the challenges of starting the business and the prospects for success – all before any significant costs are incurred.

Remember, business plans should be live and evolving documents. Business plans act as guidelines for how the company will be built and introduced into the market, but it should also reflect the latest information and changing landscape of the market. Plans should also change in regards to the progress and execution of the plan, adapting to create a template for continuing profit and success as goals are met and new challenges emerge.

Contact PPM.net for a free business plan or feasibility report consultation.

Covered Bonds Could Hit U.S. Public Market After RBC Filing

NEW YORK (Dow Jones)–The prospect of covered bonds being traded in the public market just got a huge shot in the arm after the Royal Bank of Canada (RY, RY.T) filed a registration statement to issue $12 billion of these securities in the publicly registered market Monday.

Covered bonds are like plain-vanilla corporate bonds with an extra layer of security. Payments to investors are guaranteed not only by the issuer, but also by an active pool of mortgages. If the issuer ever defaulted, the mortgages would be used to make sure bondholders were paid.

The U.S. covered-bond market has grown rapidly in recent years. But because they are sold in the private-placement “Rule 144A” market, there are restrictions on who can buy and sell them. Allowing covered bonds to trade in the public market would bring in new sources of funding, which would increase liquidity and reduce borrowing costs, market participants said.

Nearly $25 billion of covered bonds were sold in the U.S. so far this year, after a record $39.9 billion in all of 2011, according to data provider Dealogic.

On May 18, the Securities and Exchange Commission responded to RBC’s requests to issue publicly registered covered bonds with a “no action” letter. That enabled RBC to proceed on the normal path for submitting a securities filing, just as if it were planning to issue unsecured debt.

The SEC still must review the filing, which is likely to take 30 days. Then the regulator will provide comments and RBC would issue an amended filing. But the biggest hurdle has been crossed, according to Jerry Marlatt, senior of counsel at the law firm Morrison & Foerster LLP, counsel for RBC.

Once the amended filing is “declared effective,” RBC could issue $12 billion of the mortgage-linked bonds within the next three years, Monday’s filing shows. Other foreign entities then also could issue covered bonds in the publicly registered market.

“The ‘no action’ letter is a significant event, especially for the longer term,” said Riz Sheikh, head of Americas covered-bond structuring at Barclays. He called it a natural next step in the development of the U.S. covered-bond market, which has suffered in the past from poor liquidity.

Covered bonds also would become eligible for inclusion in bond indexes, such as the Barclays U.S. Aggregate Bond Index. That would help bring in new buyers who compare their performance to benchmark indexes.

“Investors who seek to replicate the index will be compelled to buy the securities,” Sheikh said.

Existing investors who have a finite capacity for privately placed bonds also will be able to increase their allocation, as the constraints would no longer apply.

Jesse Fogarty, portfolio manager at Cutwater Asset Management, said his firm has certain client guidelines prohibiting the purchase of 144A bonds. But if covered bonds were publicly traded, Cutwater would have “a great pool of money” that would be able to purchase them whenever valuations were attractive.

Cutwater has $36.8 billion in assets under management but less than $100 million in covered bonds.

The $142 billion dollar-denominated covered-bond market is just 6% of the global covered market, according to J.P. Morgan, but it has been growing rapidly in recent years.

More than half of dollar-denominated covered-bond issuance has come from Canadian banks, like RBC, which boast a geographical advantage, a healthy banking sector and a royal guarantee from Her Majesty The Queen.

However, the Canadian government last month released a new legislative framework preventing banks from using as collateral mortgages insured by the Canada Mortgage Housing Corp., which had been the norm in recent years.

An uninsured mortgage pool might raise the costs for Canadian banks issuing covered bonds, but that could be mitigated by a larger, public buyer base in the U.S.

Fogarty, however, wasn’t sure that expanding covered bonds to the public market would necessarily make them a mainstream product. While being registered obviously wouldn’t hurt liquidity, he said, “I don’t think that being registered would drive large herds of individual buyers into them.”