Corporate Private Placement Market:
2022 full year market issuance stands at $74 billion, a significant decline versus $106 billion full year issuance for 2021.3 After a strong first half for 2022 driven by the emergence from Covid disruptions and continued low rate environment, issuance significantly tapered off for the second half of the year. The slowdown was primarily attributable to, the sharp rise in interest rates and uncertainty over a potential future recession. The average deal size for the year was $221 million across 335 transactions.3 Issuance was led by activity in North America comprising 68% of total issuance. European volume was 25% and Australia continued to be light with 3% of total issuance.3 79% of the transactions were issued in USD, followed by 11% in EUR, 7% in GBP and 1% in CAD.3
Spreads and Treasuries: The public markets spreads generally tightened through the 4th quarter creating a widening private premium with the private spreads lagging the public tightening. The 10-year UST ended the year at 3.87%, although since the start of 2023 we have seen yields retreating as some inflation numbers have begun to moderate.
MIM Corporate Private Placement Activity: MIM’s 2022 origination was strong and outperformed the broader market’s lower issuance with a year-to-date total of $8.5 billion, a slight increase from $8.4 billion for 2021. MIM’s 4th quarter origination was a healthy $2.0 billion. MIM was able to offset the general market slowdown through our direct and proprietary origination platform.
MIM’s Outlook: As a result of continued persistent inflation readings and the Fed’s aggressive response, MIM’s 2023 full year US GDP forecast was revised down to +0.3% YOY growth. MIM is projecting more tightening in the early part of 2023 followed by rate cuts in 2H 2023 and anticipates the 10-year UST rates end 2023 at 3.00%. Given the elevated rates, issuers appear to be assessing their financing needs while awaiting a reduction in financial market and macro volatility, causing some pause in issuance. MIM maintains an open dialogue with issuers, with the aim of facilitating unique financing opportunities and is closely monitoring the portfolio. It should be noted that issuers have continued to maintain steady margins, and leverage ratios have remained conservative. MIM will continue to utilize our sector specialist approach and relationships, as we seek to uncover the broadest range of appropriate opportunities for our clients. Entering 2023, our pipeline remains active with a number of new deals coming from repeat issuers, as well as various direct opportunities.
Infrastructure Debt Market: FY22 capital markets activity was impacted by the rise in rates and widening spreads causing a decrease in overall issuance. 2022 capital markets issuance was down 37% to $53.2 billion compared to $85.05 billion last year.3 While investors continue to assess and navigate market volatility, several large transactions closed within the transportation, energy, and telecom space. The broader infrastructure market including bank financing was generally flat year-over-year. The total market was at $1.07 trillion compared to $1.04 trillion last year. These transactions were spread across transport (25%), energy (20%) followed by renewables (20%), telecom (17%), power (9%), social infrastructure (4%), and other (4%). Activity was focused in EMEA (41%), US & Canada (33%), Asia Pacific (18%), and Latin America (9%).3
Global Sector Highlights:
- United States: While overall markets were slower, US remained active in several sectors including power, energy, and digital. Origination activity was driven by LNG, transmission, renewables and data centers across brownfield and greenfield transactions. The Inflation Reduction Act, signed in August 2022, is providing even more incentives on energy transition assets and we expect to see an increase in these types of assets in 2023. US pipeline includes several PPP transactions that were delayed to 2023, transportation, power, LNG, digital, and renewables.
- EMEA: 2023 has opened with solid deal flow. Issuers in UK and Europe had seemed to pause in Q4 2022 as they assessed the economic environment and postponed doing deals until the new year. We have seen a number of deals launched in the first couple of weeks of the new year including for transportation, digital, and utilities. The deals are spread across the UK and Europe and the focus is on tenors in the 7-12 year area. Long dated deals do not currently appear to be favored by issuers given the higher rate environment.
- Latin America: LatAM resumed activity in the second half of 2022 with several transactions in transportation, power and energy across several countries. Governments across the region continue to push for the expansion of renewable generation, particularly Chile, Peru, Colombia and Brazil. Public bond markets provided little liquidity to help the broader market forcing Issuers to seek private markets. MIM has an active pipeline in the port, toll road, renewables, transmission and digital sectors
- Australia: Market activity resumed in Q4 2022 when several transactions launched and priced across various sectors. We expect issuance to pick up in 2023, though expect a slower start to the year as banks remain aggressive and can offer up to 12-year floating rate products. MIM expects a few existing issuers to launch in Q12023.
MIM Infrastructure Debt Activity: Despite macro headwinds affecting capital markets activity, MIM had a strong year originating $4.7 billion across 78 transactions, slightly lower than $5.1 billion originated in 2021. MIM originating several large transactions across UK and Europe. Given Sponsor’s preference for short term transactions to manage interest rate volatility, MIM partnered with Sponsors and Agents in a number of shorter, floating rate transactions.
MIM’s FY 2023 Outlook: We expect FY23 to continue some of the macro challenges markets faced in FY22 with interest rates and spreads. We expect greenfield activity to remain busy and continue to access the markets. Refinancing activity could be pushed to later in the year. First quarter tends to be slower as Sponsors, Developers, and Authorities strategize for the full year. MIM expects a continued pipeline driven by opportunities focused on renewables, transportation, pipelines, public-private-partnerships, digital infrastructure, and energy transition assets.
Private Structured Credit
4Q 2022 in Review: We saw a healthy pipeline of transactions across a diverse range of asset sectors as public market execution became challenging and issuers increasingly looked toward private markets for funding solutions and certainty of execution.
Looking to 1Q 2023: While spreads have recently tightened slightly, we feel valuations remain attractive with high all-in yields coupled with spreads wider than they were at the beginning of last year. We expect robust deal flow to continue in Q1 and are currently seeing opportunities across a diverse set of sectors including solar, energy, reverse mortgage and C-PACE.
Performance in the portfolio remained stable during the quarter. Within the consumer segment, we have seen credit metrics weaken from the low level of delinquencies and defaults seen post-COVID. We believe credit performance will likely continue to see some deterioration in 2023 should inflation remain elevated, and employment weaken, with the non-prime consumer segment more vulnerable to downside risks. We believe volatility in the public equity markets will continue to pressure asset valuations in the alts financing sector albeit with a lag. We believe structural protections remain robust and should stand up well against potential credit deterioration in 2023.
MIM Private Structured Credit Transaction Activity:1 MIM finished the year strong in Q4 with $566 million of closed investments in the alternatives, residential mortgage and commercial sectors. During 2022 total production was $1.9 billion in closed investments.
Endnotes
1 MetLife Investment Management (“MIM”) is MetLife, Inc.’s institutional management business and the marketing name for subsidiaries of MetLife that provide investment management services to MetLife’s general account, separate accounts and/or unaffiliated/third party investors, including: Metropolitan Life Insurance Company, MetLife Investment Management, LLC, MetLife Investment Management Limited, MetLife Investments Limited, MetLife Investments Asia Limited, MetLife Latin America Asesorias e Inversiones Limitada, MetLife Asset Management Corp. (Japan), and MIM I LLC and MetLife Investment Management Europe Limited.
2 At estimated fair value as of 12/31/2022. Includes MetLife general account and separate account assets and unaffiliated/third party assets
3 Metlife Investment Management, Private Placement Monitor
Disclosures
This material is intended solely for Institutional Investors, Qualified Investors and Professional Investors. This analysis is not intended for distribution with Retail Investors. This document has been prepared by MetLife Investment Management (“MIM”)1 solely for informational purposes and does not constitute a recommendation regarding any investments or the provision of any investment advice, or constitute or form part of any advertisement of, offer for sale or subscription of, solicitation or invitation of any offer or recommendation to purchase or subscribe for any securities or investment advisory services. The views expressed herein are solely those of MIM and do not necessarily reflect, nor are they necessarily consistent with, the views held by, or the forecasts utilized by, the entities within the MetLife enterprise that provide insurance products, annuities and employee benefit programs. The information and opinions presented or contained in this document are provided as of the date it was written. It should be understood that subsequent developments may materially affect the information contained in this document, which none of MIM, its affiliates, advisors or representatives are under an obligation to update, revise or affirm. It is not MIM’s intention to provide, and you may not rely on this document as providing, a recommendation with respect to any particular investment strategy or investment. Affiliates of MIM may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned herein. This document may contain forward-looking statements, as well as predictions, projections and forecasts of the economy or economic trends of the markets, which are not necessarily indicative of the future. Any or all forward-looking statements, as well as those included in any other material discussed at the presentation, may turn out to be wrong.
All investments involve risks including the potential for loss of principle and past performance does not guarantee similar future results. Investments in private placements involve significant risks, which include certain consequences as a result of, among other factors, issuer defaults and declines in market values due to, among other things, general economic conditions, the condition of certain financial markets, political events or regulatory changes, and adverse changes in the liquidity of relevant markets. Investments may be subject to periods of illiquidity, and such securities may be subject to certain transfer restrictions that may further restrict liquidity. Accordingly, no assurance can be given that, if MIM were to seek to dispose of a particular investment held by an account, it could dispose of such investment at the previously prevailing market price. Any person contemplating corporate private placement investments must be able to bear the risks involved and must meet the qualification requirements of the underlying investments.
In the U.S. this document is communicated by MetLife Investment Management, LLC (MIM, LLC), a U.S. Securities Exchange Commission registered investment adviser. MIM, LLC is a subsidiary of MetLife, Inc. and part of MetLife Investment Management. Registration with the SEC does not imply a certain level of skill or that the SEC has endorsed the investment advisor. This document is being distributed by MetLife Investment Management Limited (“MIML”), authorised and regulated by the UK Financial Conduct Authority (FCA reference number 623761), registered address 1 Angel Lane, 8th Floor, London, EC4R 3AB, United Kingdom.
This document is approved by MIML as a financial promotion for distribution in the UK. This document is only intended for, and may only be distributed to, investors in the UK and EEA who qualify as a “professional client” as defined under the Markets in Financial Instruments Directive (2014/65/EU), as implemented in the relevant EEA jurisdiction, and the retained EU law version of the same in the UK.
For investors in the Middle East: This document is directed at and intended for institutional investors (as such term is defined in the various jurisdictions) only. The recipient of this document acknowledges that (1) no regulator or governmental authority in the Gulf Cooperation Council (“GCC”) or the Middle East has reviewed or approved this document or the substance contained within it, (2) this document is not for general circulation in the GCC or the Middle East and is provided on a confidential basis to the addressee only, (3) MetLife Investment Management is not licensed or regulated by any regulatory or governmental authority in the Middle East or the GCC, and (4) this document does not constitute or form part of any investment advice or solicitation of investment products in the GCC or Middle East or in any jurisdiction in which the provision of investment advice or any solicitation would be unlawful under the securities laws of such jurisdiction (and this document is therefore not construed as such).
For investors in Japan: This document is being distributed by MetLife Asset Management Corp. (Japan) (“MAM”), 1-3 Kioicho, Chiyoda-ku, Tokyo 102-0094, Tokyo Garden Terrace KioiCho Kioi Tower 25F, a registered Financial Instruments Business Operator (“FIBO”) under the registration entry Director General of the Kanto Local Finance Bureau (FIBO) No. 2414.
For Investors in Hong Kong S.A.R.: This document is being issued by MetLife Investments Asia Limited (“MIAL”), a part of MIM, and it has not been reviewed by the Securities and Futures Commission of Hong Kong (“SFC”). MIAL is licensed by the Securities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities.
For investors in Australia: This information is distributed by MIM LLC and is intended for “wholesale clients” as defined in section 761G of the Corporations Act 2001 (Cth) (the Act). MIM LLC exempt from the requirement to hold an Australian financial services license under the Act in respect of the financial services it provides to Australian clients. MIM LLC is regulated by the SEC under US law, which is different from Australian law.
MIMEL: For investors in the EEA, this document is being distributed by MetLife Investment Management Europe Limited (“MIMEL”), authorised and regulated by the Central Bank of Ireland (registered number: C451684), registered address 20 on Hatch, Lower Hatch Street, Dublin 2, Ireland. This document is approved by MIMEL as marketing communications for the purposes of the EU Directive 2014/65/EU on markets in financial instruments (“MiFID II”). Where MIMEL does not have an applicable cross-border licence, this document is only intended for, and may only be distributed on request to, investors in the EEA who qualify as a “professional client” as defined under MiFID II, as implemented in the relevant EEA jurisdiction. Unless otherwise stated, none of the authors of this article are regulated in Ireland.
1 MetLife Investment Management (“MIM”) is MetLife, Inc.’s institutional management business and the marketing name for subsidiaries of MetLife that provide investment management services to MetLife’s general account, separate accounts and/or unaffiliated/third party investors, including: Metropolitan Life Insurance Company, MetLife Investment Management, LLC, MetLife Investment Management Limited, MetLife Investments Limited, MetLife Investments Asia Limited, MetLife Latin America Asesorias e Inversiones Limitada, MetLife Asset Management Corp. (Japan), and MIM I LLC and MetLife Investment Management Europe Limited
