With the downturn in oil prices and lower exchange rates, US and international private equity funds are looking for opportunities in Canada’s energy sector and the view of many of the funds largely in the US is that “Canada is for sale”. From direct investments, to investments in new tax effective structures, such as royalty trusts, and consolidation opportunities with domestic management teams, both new and established funds are deploying capital in the sector with $12.5 billion invested in Alberta alone in 2014. Though both debt and equity deals are being done, investment in convertible debt is advantageous from both a tax and pricing perspective, and private equity transactions can be tailored to suit a company’s individual requirements and plan. Management can expect more proactive investor involvement (often a board seat) and significantly more robust reporting than under traditional debt financing.
This morning, Christopher Thurn, Head of Capital Markets at ISM Capital in London England joined Brad Pierce (Partner) and Paul-Michael Rebus (Partner) and moderated by Bruce Lawrence (Partner) all of BLG, to discuss alternative capital structures Thurn also provided an overview on the lessons from the UK experience.
The European capital markets are open to Canadian issuers to provide bespoke debt and equity capital markets solutions often resulting in better outcomes for issuers and investors. Canadian companies can access this market via a short non-deal marketing period where they have the opportunity to expose their story to a truly differentiated investor community without committing to pursuing a transaction (no non-public information is shared with investors during this roadshow). Telling a company’s story in this way allows issuers and investors to collaborate to create a bespoke product for a given issuers situation, frequently resulting in lower coupons, fewer restrictions and higher premiums (in the case of convertibles). If an issuer decides to complete a transaction it can utilize this pre-marketing to quickly reach the same level of certainty around execution and terms as a ‘bought deal’. Institutional investors will look at transactions as small as $25m to fund a variety of projects and capital needs as many investors are now searching.
There are numerous advantages to considering an international debt capital markets or a specialist debt capital markets offering including a more suitable product tailored to your needs, a quicker process, exposure to a broader base of large institutional investors and potentially better pricing. There is little downside for companies to enter into those discussions. At a time when access to traditional debt and public markets is limited, private equity is an alternative source of capital that companies might want to consider. For more information on BLG’s Debt Capital Markets practice, please refer to http://www.blg.com/en/expertise/debtcapitalmarkets