PLI: Global Capital Markets & the U.S. Securities Laws

PLI: Global Capital Markets

& the U.S. Securities Laws

June 5, 2013

NY2 719616

2

Agenda • Capital Markets Trends

• JOBS Act One-Year Later

• Financings for U.S.-Reporting

• Financings by Foreign Banks

• Disclosure Issues

• Canadian Wrappers

3

Capital Markets Trends

4

Trends • Generally positive trends in terms of capital markets activity

• Global equity capital markets volumes are up

• Global ECM activity up 22% to $196.7bn in Q1 2013

• $60.3bn raised in January 2013

• $60.1bn raised in February 2013

• $76.2bn raised in March 2013

5

2012 Asset Class Performance & Fund Flows Actively-Managed Fund Flows (1) Asset Class and Equity Sector Performance

$bn Monthly US Equity Fund Flows

$bn Monthly Bond Fund Flows Domestic:

+$129bn

Global: +$256bn

Domestic: ($51bn)

Global: ($90bn)

____________________

Sources: FactSet, Bloomberg and AMG Data as of December 31, 2012. (1) Domestic weekly fund flows since January 1, 2012 excluding ETF activity. Bloomberg IPO Index is a market cap weighted index that consists

of 110 recent IPOs. Light blue shading represents equity indices and S&P 500 equity subsectors.

6

2012 IPO Issuance Levels in Context

Post Facebook IPO

(May 17, 2012)

4

16

20

17

11

4

11

78

19

64

10

15

20

25

30

0

5

10

15

20

25 # Deals VIX

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Euro Sovereign Debt Crisis

(Aug. 2011 – Nov. 2011)

8

15

8

18

21

10

14

4

02

15

10

10

20

30

40

50

0

5

10

15

20

25# Deals VIX


Flash Crash

(May 6, 2010)

87

39

0

40

80

120

160

2012Non-Tech Tech

83

42

0

40

80

120

160

2011Non-Tech Tech

67

1415

1012

10 11 10

1819

20

10

20

30

40

50

0

5

10

15

20

25# Deals VIX


IPO Market Has Struggled to Regain 2004-2007 Issuance Levels

____________________

Source: Bloomberg and Dealogic as of December 31, 2012. Includes SEC registered IPOs greater than $20mm base deal. Excludes SPACs, BDCs and CLEFs.

2012

2011

2010

107

45

0

40

80

120

160

2010Non-Tech Tech

$43.7bn

Proceeds

2010 2011 2012

Midpoint / Offer (11.1%) (7.1%) (10.1%)

% In/Above Range: 54.2% 60.2% 50.6%

Offer / 1 Month 7.7% 3.7% 12.8%

Non-Tech IPOs

Tech IPOs 2010 2011 2012

Midpoint / Offer: (4.9%) 7.7% 2.6%

% In/Above Range: 66.7% 76.2% 74.4%

Offer / 1 Month: 20.8% 12.7% 25.9%

Receptivity & Performance

# D

eals

# D

eals

# D

eals

$40.7bn

Proceeds

$45.9bn

Proceeds

2010 2011 2012

Tech Issuance: 29.6% 33.6% 31.0%

Non-Tech Issuance: 70.4% 66.4% 69.0%

% of Total Issuance

126

125

152

The IPO market has been open and receptive to growth companies, but clearly less open to more moderate growth stories

From 2004 to 2007, the US IPO market saw roughly 200 IPOs a year. Is 120 to 150 the “new normal?”

Some of this change is related to periodic event-related “closures” in each of the last three years

The “risk-on/risk-off” mentality has contributed to a market that is only reliable for the most attractive growth companies

A confirmed rotation into equities should create a more receptive environment for moderate growth, sponsor-backed companies

7

A look at IPOs That Impacted Sentiment in 2012

Value Creation, Destruction, and Investor Impact

Current Δ Mkt Cap

Pricing Deal Val Mkt Cap in 2012 2012 % IPO to

Date Issuer ($mm) ($mm) ($mm) Change Current Industry

02/10/11 Kinder Morgan Inc 3,293.6 40,021.0 13,980.5 9.8% 17.8% Energy

05/18/11 LinkedIn 405.7 12,337.2 6,107.6 82.2% 155.2% Technology

11/16/11 Delphi Automotive plc 529.7 12,146.4 5,076.1 77.6% 73.9% Auto/Truck

12/14/11 Michael Kors Holdings Ltd 1,085.6 10,193.0 4,993.9 87.3% 155.2% Retail

03/09/11 HCA Holdings Inc 4,353.9 13,362.8 3,745.5 36.9% 0.6% Healthcare

03/29/11 Apollo Global Management LLC 565.4 6,421.0 1,931.1 39.9% (8.6%) Finance

03/29/11 Qihoo 360 Technology Co Ltd 201.9 3,543.5 1,703.2 89.2% 104.8% Technology

05/23/11 Yandex NV 1,434.8 7,243.7 880.7 9.3% (13.8%) Technology

11/03/11 Rentech Nitrogen Partners LP 300.0 1,462.4 837.0 130.5% 88.5% Chemicals

01/27/11 InterXion Holding NV 304.6 1,614.5 731.9 76.7% 82.8% Technology

11/03/11 Groupon Inc 805.0 3,186.8 (10,079.4) (76.4%) (75.7%) Technology

12/15/11 Zynga Inc 1,000.0 1,850.2 (4,730.9) (74.9%) (76.4%) Technology

04/13/11 Arcos Dorados Holdings Inc 1,436.6 2,506.0 (1,795.7) (41.7%) (29.6%) Consumer

06/16/11 Bankrate Inc 344.9 1,245.6 (904.3) (42.1%) (17.0%) Technology

03/24/11 ServiceSource International Inc 137.3 442.0 (672.1) (62.7%) (41.5%) Technology

10/13/11 Ubiquiti Networks Inc 121.4 1,074.9 (592.9) (33.4%) (19.1%) Technology

12/14/11 Laredo Petroleum Holdings Inc 342.1 2,328.9 (517.1) (18.6%) 6.8% Energy

05/25/11 Lone Pine Resources Inc 195.0 104.7 (491.3) (82.5%) (90.5%) Energy

05/24/11 Active Network Inc 189.8 297.4 (440.6) (63.9%) (67.3%) Technology

05/25/11 Freescale Semiconductor 883.2 2,733.2 (372.8) (13.0%) (38.8%) Technology

Current Δ Mkt Cap

Pricing Deal Val Mkt Cap Since IPO IPO to

Date Issuer ($mm) ($mm) ($mm) Current Industry

10/11/12 Workday 732.6 9,055.9 4,567.7 94.6% Technology

10/10/12 Realogy Holding 1,242.0 5,876.2 2,362.1 55.4% Real Estate

12/06/12 Western Gas Eq. Partners LP 434.7 6,555.9 1,920.2 36.1% Energy

06/28/12 ServiceNow 241.2 3,754.4 1,589.2 66.8% Technology

03/07/12 Nationstar Mortgage Holdings 268.3 2,800.9 1,587.6 121.3% Finance

07/25/12 Northern Tier Energy LP 261.6 2,338.3 1,308.9 81.7% Energy

04/18/12 Splunk 263.9 2,861.8 1,288.8 70.7% Technology

05/02/12 Carlyle Group LP 671.0 7,913.6 1,214.6 18.3% Finance

01/24/12 Guidewire Software 132.3 1,646.6 1,011.0 128.6% Technology

04/04/12 Retail Properties of America 292.6 2,761.7 953.5 49.6% Real Estate

05/17/12 Facebook 16,006.9 57,669.6 (23,577.6) (29.9%) Technology

05/03/12 PetroLogistics LP 595.0 1,889.8 (473.2) (20.4%) Energy

03/14/12 Allison Transmission Holdings 690.3 3,730.1 (441.6) (11.2%) Auto/Truck

04/19/12 Midstates Petroleum Company 358.8 458.9 (394.3) (47.0%) Energy

10/25/12 WhiteWave Foods Co 391.0 2,688.4 (252.6) (8.6%) Consumer

04/17/12 SandRidge Mississippian Trust II 627.9 809.0 (225.2) (22.5%) Energy

03/28/12 CafePress Inc 85.5 98.7 (223.9) (69.6%) Technology

02/21/12 Ceres Inc 74.8 112.6 (202.6) (65.1%) Cleantech

02/01/12 Matador Resources Co 178.6 455.7 (201.0) (31.7%) Energy

04/24/12 Envivio Inc 69.8 45.8 (194.1) (81.1%) Technology

2012 IPO Performance by Market Cap Change 2011 IPOs – Performance in 2012

____________________

Source: Dealogic and Bloomberg as December 31, 2012. Includes SEC registered IPOs greater than $20mm since January 1, 2011. Excludes SPACs and CLEFs. Dark shading represents Tech IPO.

"Winners” and “Losers" are often assessed on % movement, but market cap expansion / contraction is more reflective of sentiment and impact on portfolio returns

Market cap change is a valuable proxy, but constrained IPO floats mean that public investors do not experience all of the profit or loss

The largest 2012 IPO value creators were comprised of a broad make-up of sectors, led by Tech but also with finance, real estate, energy, & retail

Notably, the 3 best-performing Tech IPOs were software issuers

Deals that lost shareholder value are led by Facebook, which shed ~$23bn in market cap and ~$4.5bn in public float (equal to ~15% of the non-FB IPO issuance for all of 2012)

Class of 2011 IPO performance during 2012 also had a substantial impact on receptivity to new deals, especially within Tech

Of the top 10 value decliners this year from 2011’s IPO crop, 7 were Tech issuers (4 from internet)

Groupon and Zynga highlight the list, with the 2012 struggles of each sapping demand for new stories

8

IPO Trends

IPO activity is once again picking up

$24.5bn in 147 deals in Q1 2013

In the U.S., $8.8bn in 35 deals in Q1 2013

28 emerging growth company IPOs in Q1 2013

Very few IPOs withdrawn during Q1 2013

Queue of IPOs is growing

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JOBS Act One-Year Later

10

JOBS Act Status

Title I – IPO “on-ramp” provisions – immediately effective

Title II – Rule 506 and Rule 144A deregulation of offers requires

SEC rulemaking

Rule proposed in summer 2012; comment period closed in fall 2012

Final action pending

Matchmaking guidance immediately effective

• SEC no-action letter guidance to Funders Club and Angel List

• Title III – crowdfunding provisions require SEC rulemaking as well as

an SRO framework

• awaiting proposed rules

• Title IV – Section 3(b)(2) exemption (Regulation A+)

• awaiting proposed rules

• Titles IV & VI – addressed the Exchange Act threshold; immediately

effective

• many banks have chosen to “go dark”

11

IPO On-Ramp

We now have a little over a year of experience with EGC IPOs,

including IPOs by FPIs that are EGCs

Although practice continues to develop and evolve, we can comment

on some of the emerging trends

12

Title I: Market Practice

EGCs have been taking advantage of the confidential review

process.

Consideration of the impact on a “dual-track” strategy

Possible to use a press release

Possible to share the confidential submission with a limited number of investors

Adverse effects on the visibility of the IPO pipeline

Timing considerations relative to the marketing of the offering

Market practice in terms of EGC disclosure accommodations is still

developing

Financial information: more EGCs have elected to present financial information for

a longer period – generally three years

Executive compensation: most EGCs are availing themselves of the reduced

disclosure requirements

Auditor attestation: most EGCs are affirmatively choosing to avail themselves of

the delayed implementation

13

Title I: Market Practice (cont’d)

Test-the-waters discussions

Not as useful as first envisioned

Taking place later in the process

Research

A 25-day “quiet period” has evolved

SIFMA MAAU and Attorney General Settlement

14

Looking Ahead

SEC to finalize Rule 506 rulemaking, likely in conjunction with

finalizing the bad actor provisions

SEC to propose crowdfunding rules

Continued discussion regarding the “accredited investor” standard

Discussion of disclosure accommodations for smaller public

companies and potentially revamping S-K

Reporting for companies that are OTCBB or that have securities

traded in a private secondary market

15

Financings for

SEC-Reporting Companies

16

Trends • The nature of follow-ons continues to change, with “traditional” fully

marketed follow-ons becoming less common, and accelerated public

offerings or confidentially marketed public offerings becoming

increasingly important

• Bought deals (or block) also have become more popular

17

Market Trends (cont’d)

18


19


20


21


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Market Trends (cont’d) • For Q1 2013, accelerated offerings reached $97.6bn, in 379 deals

• 57% of total stock volume in Q1 2013

• Bought deals increasing rapidly – largely involving selling stockholder

sales

23

Legal Considerations • Accelerated deals and bought deals raise a number of special

considerations

• Diligence issues

• Pre-marketing

• How does a bought deal differ from a traditional follow-on or a

confidentially marketed public offering?

• Why use a bought deal?

• Cost

• Timing

• Sales by VCs, PE sponsors, other selling stockholders

• How are these executed?

• Fixed price

• Variable re-offer

• Timing and disclosure considerations

24

Financings by Foreign Banks

25

Foreign Bank Debt Financing Activities

• Types of bank debt issuances

• Senior unsecured debt

• Senior secured debt (including covered bonds)

• Subordinated debt

• Structured debt (e.g., equity-linked and commodity-linked notes)

• Hybrid debt/preferred stock

• Contingent capital (“coco”) debt

• Deposit liabilities

• Issuing entities

• Home offices

• US bank subsidiaries

• US branches

• Other affiliated entities (e.g., financing SPVs)

26

Foreign Banks • Securities exemption

• 144A programs or standalone issuances

• 3(a)(2) programs or standalone issuances

• Commercial paper or Yankee CDs

27

Section 3(a)(2) and Offerings by Banks

• Section 3(a)(2) of the Securities Act exempts from registration under

the 1933 Act and any security issued or guaranteed by a bank.

• Basis: banks are highly regulated, and provide adequate disclosure

to investors about their finances in the absence of federal securities

registration requirements. Banks are also subject to various capital

requirements that may increase the likelihood that holders of their

debt securities will receive timely payments of principal and interest.

28

What Is a “Bank”? • Under Section 3(a)(2), the institution must meet both of the following

requirements:

• It must be a national bank or any institution supervised by a state banking

commission or similar authority; and

• Its business must be substantially confined to banking.

• Examples of entities that don’t qualify:

• Bank holding companies

• Finance companies

• Investment banks

• Foreign banks

29

What Is a “Bank”? (cont’d) • Another basis for qualification: securities guaranteed by a bank.

• Not limited to a guaranty in a legal sense, but also includes arrangements in which

the bank agrees to ensure the payment of a security.

• The guaranty or assurance of payment, however has to cover the entire

obligation; it cannot be a partial guarantee or promise of payment.

• Again, guarantees by foreign banks (other than those of an eligible U.S. branch or

agency) would not qualify for this exception.

• The guarantee is a legal requirement to qualify for the exemption; investors will

not be looking to the US branch for payment/credit. Investors will look to the

home office.

30

Non-U.S. Banks/U.S. Offices • U.S. branches/agencies of foreign banks are conditionally entitled to

rely on the Section 3(a)(2) exemption.

• 1986: the SEC takes the position that a foreign branch/agency will be

deemed to be a “national bank” or a “banking institution organized

under the laws of any state” if “the nature and extent of federal and/or

state regulation and supervision of that particular branch or agency is

substantially equivalent to that applicable to federal or state chartered

domestic banks doing business in the same jurisdiction.”

• As a result, U.S. branches/agencies of foreign banks are frequent

issuers of debt securities in the U.S. Most issuances occur through

the NY branches of these banks.

31

Non-U.S. Banks/U.S. Offices (cont’d) Examples of Issuing Entities:

• U.S. branch as direct issuer: UBS, CS, NAB, CBA and ANZ

• U.S. branch as guarantor, headquarters as issuer: BNP, Rabo,

SocGen, Svenska

• U.S. branch as guarantor, SPV/Cayman branch as issuer: Fortis,

BNP

• More banks are using a guarantee structure to allow greater flexibility for use of

proceeds

Which Regulator?

• Most U.S. branches have elected the N.Y. State Banking

Commissioner as their primary regulator with their secondary

regulator the Federal Reserve.

• Some U.S. branches have opted for the Office of the Comptroller of

the Currency (“OCC”) as their primary regulator.

32

FINRA Requirements • Even though securities offerings under Section 3(a)(2) are exempt

from registration under the Securities Act, public securities offerings

conducted by banks must be filed with the Financial Industry

Regulatory Authority (“FINRA”) for review under Rule 5110(b)(9),

unless an exemption is available.

• Transactions under Section 3(a)(2) must also be reported through

FINRA’s Trade Reporting and Compliance Engine (“TRACE”).

TRACE eligibility provides greater transparency for investors.

Currently, Rule 144A securities are not TRACE reported.

33

Pricing Date Issuer Ratings (M/S) Coupon (%) Tranche Value (US$mm) Structure Maturity Date Deal Nationality

1/7/2013

1/7/2013

11/8/2012

Intesa SanPaolo Spa (New York)

Intesa SanPaolo Spa (New York)

American Express Centurion Bank

Baa2/BBB+

Baa2/BBB+

A2/A-

3.125

3.875

0.875

2,000

1,500

750

3YR FXD

5YR FXD

3YR FXD

1/15/2016

1/16/2018

11/13/2015

Italy

Italy

US

11/8/2012 American Express Centurion Bank A2/A- 3mL+45bp 550 3YR FRN 11/13/2015 US

11/2/2012 Rabobank Nederland Aa2/AA- 3.950 1,500 10YR FXD 11/9/2022 Netherlands

11/2/2012 National Bank of Canada Aa2/A 1.450 750 5YR FXD 11/7/2017 Canada

10/17/2012 PNC Bank NA A3/A- 2.700 1,000 10YR FXD 11/1/2022 US

9/4/2012 Australia & New Zealand Banking Group (New York) Aa2/AA- 1.875 750 5YR FXD 10/6/2017 Australia

8/10/2012 UBS AG (Stamford) -/BBB- 7.625 2,000 10YR FXD 8/17/20222 Switzerland

8/8/2012 National Australia Bank Ltd Aa2/AA- 2.000 13 5YR FXD 8/10/2017 Australia

7/26/2012 National Australia Bank (New York) Aa2/AA- 3mL+113bp 500 3YR FRN 8/7/2015 Australia

7/26/2012 National Australia Bank (New York) Aa2/AA- 1.600 1,250 3YR FXD 8/7/2015 Australia

7/10/2012 Sumitomo Mitsui Banking Corp Aa3/A+ 1.350 1,000 3YR FXD 7/18/2015 Japan

7/10/2012 Sumitomo Mitsui Banking Corp Aa3/A+ 1.800 1,250 5YR FXD 7/18/2017 Japan

7/10/2012 Sumitomo Mitsui Banking Corp Aa3/A+ 3.200 750 10YR FXD 7/18/2022 Japan

6/6/2012 TCF National Bank Baa1/BBB- 6.250 110 10YR FXD 6/8/2022 US

3/28/2012 Svenska Handelsbanken AB Aa3/AA- 2.875 1,250 5YR FXD 4/4/2017 Sweden

3/16/2012 National Australia Bank Ltd Aa2/AA- 3mL+1bp 175 3YR FRN 3/20/2015 Australia

3/5/2012 Commonwealth Bank of Australia (New York) Aa2/AA- 1.950 2,000 3YR FXD 3/16/2015 Australia




1/17/2012 First Republic Bank Baa3/BBB 6.700 200 Perpetual Perpetual US


7/20/2011 Rabobank Nederland Aa2/AA- 3mL+20bp 360 2YR FRN 7/25/2013 Netherlands

7/5/2011 Svenska Handelsbanken AB Aa3/AA- 3.125 1,250 5YR FXD 7/12/2016 Sweden

5/24/2011 BNP Paribas SA A2/A+ 3.250 100 4YR FXD 3/11/2015 France


4/14/2011 Rabobank Nederland Aa2/AA- 3mL+35bp 350 3YR FRN 4/14/2014 Netherlands

4/6/2011 BNP Paribas (New York) A2/A+ 5.000 1,000 10YR FXD 1/15/2021 France

3/22/2011 UBS AG (Stamford) A2/A 3mL+40bp 300 2YR FRN 9/25/2012 Switzerland


1/25/2011 UBS AG (Stamford) A2/A 2.250 1,000 3YR FXD 1/28/2014 Switzerland

1/25/2011 UBS AG (Stamford) A2/A 3mL+100bp 750 3YR FRN 1/28/2014 Switzerland

1/12/2011 BNP Paribas (New York) A2/A+ 5.000 2,000 10YR FXD 1/15/2021 France



Note: Shading denotes Yankee issuance; list is comprehensive but may not capture every 3(a)(2) issuance in 2011-13; 3(a)(2) issuances are

unsecured

3(a)(2) Issuances (2011- 2013)

34

Financial Products Offered by Foreign Banks

• In recent months, foreign banks have been active issuing:

• Structured products

• Covered bonds

• 144A US-Dollar denominated

• SEC-registered in reliance on SEC no-action letter guidance

• Contingent capital instruments

• UBS 3(a)(2) offering

• Barclays registered offering

35

Disclosure Issues

36

Disclosure Issues • Foreign issuers are among those most affected by specialized

disclosure requirements

• Iran disclosures

• Conflict minerals

• SEC FAQs

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Canadian Wrappers

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Wrapper Relief • Ontario Securities Commission/Canadian Securities Administrators

recently granted exemptive relief to certain dealers permitting

offerings to institutional investors without the traditional wrapper

• Guidance becomes effective June 22, 2013

• Conditions:

• Securities issued by a foreign (not Canadian) issuer

• Certain required disclosures must be included in the offering document, such as

issuer disclosures, required conflicts disclosures

• Dealers must still maintain records relating to Canadian sales and collect

acknowledgments

PLI: Global Capital Markets & the U.S. Securities Laws

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Transcript of PLI: Global Capital Markets & the U.S. Securities Laws