With US$1bn of orders, the deal found buyers from a variety of corners. Pricing was Treasuries plus 185bp, with a 3.976% coupon.
For financials, the notes present a new source of contingent liquidity, especially during hard times.
It was the second such offering of these securities by a life insurance company, a new structure devised by Credit Suisse. Prudential Financial was the first to market in 2014, when it sold US$1.5bn of the notes also through the Swiss bank.
The key selling point for a financial such as Voya is flexibility in using proceeds and quick access to capital.
David Pendergrass, Voya’s treasurer, said: “This gave us an opportunity to go ahead and raise capital – really at a time we didn’t need capital, which is opportunistically exactly when you want to raise capital.”
He said that Credit Suisse was “very persistent” because it was touting a unique structure. “It took a lot of hand-holding and explanation” and it was over a year from start to launch.
“Execution was very good,” he said. “It was oversubscribed on a day that was rocky in the marketplace.”
Pendergrass said the deal was viewed as credit-positive by the rating agencies because the capital was pre-raised. Proceeds were invested in Treasury strips matching the payment date. The issue was rated Baa2/BBB.
Harking back to the financial crisis, Pendergrass said that traditional credit sources, such as bank lines of credit, are not a guarantee. Even traditional debt offerings can be unwieldy and may not get the same favourable treatment by the raters, he noted.
Arvind Sriram, a director in DCM solutions at Credit Suisse, said: “This is the product of the future.”
It offers an alternative to traditional lines of credit, he noted. The economics for bank revolvers are not the same as they were pre-financial crisis.
“It came down to a win-win situation,” Pendergrass said. “We got it down to where it was extremely cost-efficient.” There was a cost, he said, but it was manageable.
The trust allowed the company to reallocate some investments into longer-term and more illiquid securities, generating income that would help cover the premium paid to the P-cap noteholders, he said.
And others in the industry have taken notice.
“Because it is so flexible in what it can be used for and because it is off the balance sheet, it would appear that it would make sense for a lot of the companies in our industry,” Pendergrass said. This industry may have unanticipated needs to raise capital or tap liquidity for a variety reasons, including credit and macro-economic events, and this structure allows companies to do both.
“I think it is likely you see will see more of these deals next year in the industry,” he said.