A number of education and not-for-profit institutions have already taken advantage of the UK private placement market, and that market is set to receive a boost from the Loan Market Association’s recent publication of standard form documents.
Private placements typically involve issuing long term debt to a small group of sophisticated investors such as pension funds and insurers. Like a bond, it can offer a longer term and fewer covenants than a bank loan – but unlike a bond, there is no need for a public prospectus or a listing, and the amount borrowed can be smaller. As bank lending has shrunk, borrowers have turned to the private placement market (€28 billion across Europe in 2014 according to a recent report from S&P).
Private placements by UK borrowers have typically used US-style documents, partly because that’s what’s been available and partly because as the private placement market is more developed in the US, many investors are US-based and expect to see US style documents. However, those documents can look unfamiliar and daunting to UK borrowers.
The Loan Market Association (“LMA”) has taken the first steps towards creating a standard set of European documents. In January this year it published a set of standard form documentation including a model form subscription agreement. These documents are based on the LMA’s templates for bank lending and will be much more familiar to education and not-for-profit institutions, many of whom already have banking facilities based on the LMA’s documents. The LMA and other stakeholders are hoping this will encourage a broader range of issuers and investors to look at private placement debt. The education and not-for-profit sectors can be attractive to investors seeking long term returns. With many institutions in those sectors looking to make capital investments in their facilities, they could be among the biggest beneficiaries of a strong UK private placement market.