The Australasian USPP volumes for tenors eight years and longer stands at roughly $4.86 billion (equiv. using YTD average exchange rate) in the calendar year to September 12th. This is more than 5.6 times the issuance in the Australian domestic market, which stands at roughly $0.87 billion1 for the same period and tenor.
The rebound in the USPP market was driven by the same reasons that have set it apart for more than three decades - long-term funding commitments, stability of pricing and a reliable pool of liquidity. These characteristics have remained consistent through times of market dislocation.
"Part of the attraction is the resilience of the market and that it has remained supportive of issuance in a broad range of credit environments," says CBA’s executive director and head of debt private placements, Rosalie Valladares.
Importantly, it also "provides flexibility across tenors and tranche sizes" which is highly attractive for local corporates looking to diversify their debt funding, she says.
Moreover, there’s no minimum tranche size. "It’s a market that has proven to be a vital avenue for those local corporates seeking to broaden their funding sources and target a specific duration outcome," Valladares says.
According to Valladares, Australian issuers with long-term assets are a great match for the US investor base. Given US private placement investors are looking for creditor and geographic diversification, Australia offers a resilient economy matched with a strong regulatory and governance regime which is appealing, particularly in the utilities sector, she says.
One Australian utility which has issued into the USPP market this year is Ausgrid. The company raised over $1.48 billion across four currency pairings and multiple tranches, making it one of the top five foreign US private placement transactions in 2023.2
"The size of the Ausgrid transaction moved the needle for utilities," Valladares says.
Ausgrid chief financial officer Michael Bradburn says the USPP market is stable and reliable – which made it a good option for issuance against the backdrop of rising rates and the uncertainty around inflation. Importantly, Ausgrid was an attractive proposition for US investors who are "generally very keen to support Australian companies, especially a regulated utility and repeat issuer like ourselves."
Facing a sizeable refinancing task, Ausgrid had the challenge of finding a market that would be able to support a strong volume and pricing outcome when the issuer was ready to execute following an extended amendment process, says group treasurer, Ed Waters. "The USPP market is attractive because of its reliability across the cycle and the option to diversify across different tenors meaning we could spread a large volume of issuance across more than one tenor and significantly reduce future refinancing risk," Waters says.
"This allowed us to blend multiple tenors together ranging from seven to 15 years, creating greater access to capital and an overall larger transaction size. Ausgrid’s distribution network has an important role to play in supporting the NSW’s energy transition and the funding certainty of the USPP market makes it a reliable core issuance market."
"We were also assisted by CBA as one of three – lead placement agents on the transaction. CBA was very well co-ordinated between relationship and the product teams offshore and onshore. Being under the one roof and the co-ordination between teams was a core part of delivering such a strong and well balanced, price competitive outcome," Waters says.
CBA’s executive director, real estate and infrastructure, future cities and networks Scott Young, says "In the context of Ausgrid, they will continue to participate in bank and debt capital market issuance into the foreseeable future and it’s expected they’ll be a prominent issuer in various markets in Australia and around the globe."
Bearing this in mind, Young says CBA works strategically with Ausgrid well in advance of any transaction coming to market.
"We’re continually refining and assisting Ausgrid to better understand their funding needs and being proactive. Working closely with clients is one of the core tenets of what CBA seeks to do."
Another local company tapping the USPP market this year was AGL Energy, which sought funding to support its role in the nation’s energy transition.
"What we fundamentally like about the USPP market is the tenor," says AGL’s general manager of capital markets and corporate development, Stephen Brown. "It provides a longer tenor debt product that helps us better balance the treasury book to achieve our diversification goals across tenor, markets and structures."
Brown said the CBA team were especially helpful in managing investors and walking them through where Australia is at in its energy transition.
"Bringing that local market knowledge and helping provide that to the US investors enabled us to have more productive conversations and was probably a key value add," Brown says.
"There are certain States in the US, including California, who are about where we are in the energy transition, but there are some states that are behind. It was interesting seeing a diversity of views from investors on how they’re addressing the transition and from our perspective, really talking about how we are managing, leaning into and delivering on Australia’s energy transition."
As for CBA’s broader role in the USPP market, we provide an end-to-end service supporting Australian and New Zealand corporate issuers. Companies such as Ausgrid and AGL have turned to CBA for risk management solutions including cross currency swaps to convert issuance proceeds into the desired currency and protect against future movements in foreign exchange and interest rates. A key feature of the USPP market is the flexibility it can provide issuers to obtain funding from investors across a range of maturities and currencies on the same transaction.
"Our focus is to work closely with each client to streamline and manage what can be a very intricate swap execution process. Establishing trust and confidence in this aspect of the deal allows our clients to concentrate on all the other competing, time-sensitive priorities supporting the transaction to reach a successful conclusion", says CBA’s managing director of client risk solutions, Hope Gatis.
This article was originally published in The Australian Financial Review (Nine Publishing) on 3rd October 2023.
