Tabcorp priced its US$1.4 billion multi-tranche transaction on 23 March (see table), led by Commonwealth Bank of Australia, National Australia Bank and UBS. It is the second-largest Australian-origin USPP deal, behind Ausgrid’s US$1.9 billion deal in August 2017.

Tabcorp US$1.4bn deal structure

Source: Australian Securities Exchange 5 April 2018

Clare Lewis, Sydney-based director, corporate debt markets origination at National Australia Bank, says the deal was launched as a US$300 million deal at 10-, 12- and 15-year tenors. The additional volume and tenors were the result of reverse enquiry as investors looked to maximise allocations in a “highly sought-after” deal.

Lewis tells KangaNews: “With the bridge facility being refinanced having a maturity date in December 2019, there was no timing pressure with respect to this deal or the overall refinancing. However, given the solid interest shown by investors, the company decided to upsize the deal to take advantage of the attractive long-term funding opportunity.”

Barry Sharkey, Sydney-based managing director at UBS, explains that the Tatts Group (Tatts) combination essentially doubled the size of Tabcorp’s debt book, giving Tabcorp the ability to monitor all debt markets when considering the financing of its bridge loan.

“We looked at pricing in all global markets but particularly the US dollar Reg S market, which has been very conducive for Australian corporate borrowers over the last 12 months but has experienced increased volatility recently,” Sharkey tells KangaNews. “In this case the pricing offered by the USPP market was very competitive compared with the others.”

Tabitha Chang, director debt capital markets origination at Commonwealth Bank of Australia in Sydney, reveals that execution certainty ultimately led to choosing the USPP format.

“When the USPP market circled, it was against a volatile backdrop with a number of Australian corporate borrowers on hold in public markets. The company was delivered a book that covered the bridge facility across tenors of 8 to 18 years at very attractive pricing. So it elected to refinance the entire bridge facility - taking refinancing risk off the table.”

Sharkey insists that while markets are still well and truly open, market volatility has caused issuers to become more tactical with their issuance plans so far in 2018. “The private nature of the USPP market gives it some insulation from public-market moves, so we viewed this as a good place for Tabcorp’s capital-markets return. Our pricing expectations did not change throughout the transaction, despite seeing adverse moves in other markets”.

Lead managers also reveal that investor familiarity played a role in the successful transaction.

Sharkey tells KangaNews that both Tabcorp and Tatts are familiar names to USPP investors - with a successful track record going all the way back to Tabcorp’s debut issue in 2004. He adds that many of the investors that came into the latest deal had held either or both of the companies prior to the acquisition.

The merged entity roadshowed across the US and this also enabled it to draw a number of new investors to the transaction. Chang adds: “Importantly, not one investor dropped out of the book despite the sell-off across asset classes that was occurring at the time.”

Sharkey continues: “This dynamic, coupled with the very competitive pricing, long tenor and volume available, made the USPP market a very good choice for the company. Locking in tenor and completely refinancing the bridge was viewed as a prudent funding strategy, particularly given the heightened market volatility and as we transition into a rising interest-rate environment.”