Authored by: Wendy Harlan (Unum Group)
While this year’s theme for the Spring Forum, A Whole New World, emphasized how much things have changed (and indeed they have), for many, the return to the Ballroom at the Four Seasons Hotel in Chicago was a familiar and welcome opportunity for in-person attendees to meet with friends, colleagues, and new members. This year’s Forum was simulcast remotely, so many (me included) were able to participate from the comfort of our home and workplace offices.
The Forum was organized by co-Chairs Charles Calloway (Chapman and Cutler) and Noelle Sproul (Nuveen), together with the Education Committee, Development Committee, and ACIC staff CJ Marchain, Caitlin Watson and Jody Henry.
Nine sessions over two days were presented in person and on the Whova platform, with 122 people in the room and 37 online. Interactive polling kept things interesting. And, as always at ACIC sessions, the written materials were top rate and provide much more detail than there is room for in this summary.
This year’s theme was chosen because both co-chairs spent a LOT of time during the pandemic watching Disney movies with their kids while simultaneously working – undoubtedly leading to dreams of note purchase agreements and issues memos set to soaring ballads and rousing dance numbers.
Welcome / Introduction / Announcements: Charles and CJ started off the introductory Session with a warm welcome to everyone in the Ballroom and online, and provided logistics. Participants were encouraged to complete autograph books and participate online through the Whova app for prizes.
Session 1: A Whole New World – A Whole New Market? Market Update
We opened our eyes as Chris Oberholtzer of BofA Securities and Stephanie Acheson of KeyBanc Capital Markets, led by moderator Clara Pauw of Chapman and Cutler, took us “wonder by wonder, over, sideways and under” through recent trends and a 2022 outlook. After a review of 2021 market data, they discussed key issuance sectors, trends in ESG/Green bonds, buyside investor trends, and developments in infrastructure deals. 2022 is expected to be another very strong year, with Q1 issuance at a record pace, and the potential for headwinds due to inflation/rate hike concerns and the war in Ukraine. Many attendees took advantage of the presenters’ expertise to ask questions about the current state of the market.
Session 2: Surface Pressure – In the Grip, Grip, Grip of the REIT Legacy Market
Brendan Kelly (New York Life) moderated this discussion among Joseph Pagliari (U Chicago), Michael La Fleur (TD Securities) and Jerry Kokal (U.S. Bancorp). Professor Pagliari started us off with financial fundamentals in real estate, providing “pressure that’ll tip tip tip till you just go pop” on the lawyers who haven’t seen algebraic formulas since their own college days. Jerry then described the current state of REIT private placements, which have averaged 16% of issuances since 2014. Mike led us through the current state of covenant packages in REIT transactions. The panelists wrapped up with a lively discussion of various trends in each property category.
Session 3: Mother Knows Best – NAIC Knows Best
Mothers everywhere would be proud of how moderator Chris Lawrence (Akin Gump) and speakers Sasha Kamper (Apollo Global Management) and Tracey Lindsey (Nationwide) ably handled a hybrid presentation on NAIC’s approach to ratings and its view on the “whole romance that’s [been] invented” between insurance company investors and ratings agencies. The team started with the basics on how debt securities are rated, why they matter, and common issues that arise, and then discussed the new NAIC requirements for ratings rationales and how the ratings impact the RBC charges insurers must take. The panelists reviewed the NAIC’s 2021 study assessing ratings comparability across NRSROs, which found material discrepancies in rating scales and methodologies, and the solutions the NAIC is considering.
Session 4: Something There – Legal and Structuring Considerations in Private ABS
Moderator Leah Sanzari (Orrick) introduced panelists Paul Carroll (MetLife), Faisal Kassam (Kuvare), Enzo Incandela (Kuvare) and Katy Berger (King & Spalding), who spoke enthusiastically about the recent movement of asset-backed security issuances from the 144A market to the Private Placement / 4(a)(2) market. The transactions are more nuanced and the collateral more esoteric than we see in many private placements, with deeper relationships between the issuer and the investors, leading the players to ask “And who’d have guessed they’d come together on their own?” The panelists described ABS documentation and financing structures, a key element of which is isolating the assets in a bankruptcy remote issuer (and obtaining related true sale and non-consolidation legal opinion). They ended with their optimistic theories about where this market is going and how it is expanding.
Session 5: Lead the Way – Impact in Private Placements.
Led by Julia Singh (Greenberg Traurig), this panel included Jeff Hughes (Ares Management Corporation), Jamie Kocis (Kramer Levin), Kristine Larson (Allianz Investment Management) and Erica Elsasser (KeyBank Capital Markets). While the best-known investments are in renewable energy and utilities, impact investments can be found across many sectors, including housing, universities, and financial institutions. The panelists described the Green Bond Principles (2021), the Climate Bond Standards, and increasing (but not yet consistent) standardization of the approach to ESG principles in the private placement industry, as well as certain new laws and regulations that motivate green building and financing. The new PPIA Corporate Sustainability Questionnaire was introduced. The panel also discussed industries that some investors are avoiding because they are perceived as not socially responsible, and how the investor’s stakeholders are increasingly supporting impact investments. It was widely agreed that there is not a pricing benefit in ESG financing, which triggered further conversations around how the profit motive and social investing interact, leading to the question, can we “put the past behind, learn from life this time [and] start brand new.”
Section 6: For the First Time in Forever – The Infrastructure Door is Finally Open.
H.R. 3684 – the long-awaited $1.2 trillion Infrastructure Investment and Jobs Act – was passed in November 2022, and “for the first time in forever, there’ll be music, there’ll be light” created by all the projects this legislation will fund. Omar Woodard (Results for America) moderated a discussion with Susan Lent (Akin Gump), Masi Patel (MetLife Investment Management) and Luke Fernandes (Swiss Re Management (US)). The panel led off with a description of the Act, which takes a broad view of infrastructure and provides many grants and loan opportunities to state governments and government agencies to fund projects. The program has increased the opportunities for private activity bonds (PABs), by expanding the allocations for qualified highway and surface freight transportation facilities and making more types of projects eligible. The funds offer many opportunities to grow the green footprint in the U.S., such as school and university-based programs and EV recharging networks, and provide social benefits, such as rural broadband projects. While the Act did not explicitly promote private investment (and taxable municipal bond opportunities may be limited), there will be opportunities as the states and municipalities determine how to structure their projects, how to get the work done in a reasonable time, and how to allocate risk. The crystal ball is still cloudy on exactly how this giant stimulus bill will impact the private placement markets, but everyone is optimistic that the transformative projects will provide plenty of investment opportunities.
Following six hours of presentations, mixing (drinks) and mingling (people) at the reception was undoubtedly a treat for the Chicago attendees. Those of us at home shuffled off to catch up on emails and enjoy dinner. This year’s reception was held in the newly renovated Delaware Room at the Four Seasons. Attendees were able to feast on heavy hors d’ouevres and a flatbread station while catching up with old and new friends over cocktails. It was a fantastic way of winding down after six informative panels.
Section 7: Poor Unfortunate Souls – Candid Conversations About the Challenges of Predesignated Counsel Alongside the Ethics Rules
Following brief morning announcements by co-Chair Charles Calloway, co-Chair Noelle Sproul kicked off the first of our two ethics sessions. Heather Wenzel (Morgan, Lewis & Bockius) moderated a discussion with Michael L. Urschel (King & Spalding), William Bulmer (Prudential Private Capital) and Abhishek Gupta (BofA Securities). These poor unfortunate souls “took a gulp and took a breath” and led a fascinating discussion regarding the history of predesignated counsel, the legal ethics rules that guide counsel, and the advantages and pitfalls of this complicated role in practice. They discussed what a helpful issues memo looks like, how to provide feedback on predesignated counsel, and how and when investor points are made. There was a very candid conversation around the increasingly compressed deal timelines, and how that affects everyone in the transaction. They ended with a discussion of the duty of loyalty and undue influence on predesignated counsel.
Section 8: Bare Necessities – Return to the Bare Necessities of the Private Placement Market
Owen Zingraff (Barings LLC) moderated panelists Brendan Olin (Unum Group), Mark Sternberg (ArentFox Schiff) and Ann King (SLC Management), who returned to the basics so that the newer bears in the audience could “just try and relax, yeah cool it.” The presentation began with an overview of the ACIC model NPA forms, including a reminder that the annotated forms are especially helpful. The panelists then explained some of the key points and distinctions in the most important note purchase agreement provisions. If you want to better understand the key issues in multi-currency transactions and the details of currency swaps, this was the session to attend! The panelists briefly addressed a number of issues and provided pointers for reviewing and negotiating these provisions in NPAs. The session ended with some recommended updates to the model forms.
Section 9: Dig a Little Deeper – Diversity in Private Placements – Strengthening the Future Pipeline
The final session of the Spring Forum was led by Fellicia Foster (BMO Harris Bank) who was joined by speaker Andrea Zopp (Cleveland Avenue). The session started with statistics regarding racial diversity in law firms and financial institutions. The speakers dug a little deeper to discuss some of the causes that limit diversity in those sectors, and emphasized that the goals are to attract, grow, develop, advance and retain a diverse workforce for the betterment of the firms. The conversation was thoughtful, and the speakers proposed specific steps that everyone can take, emphasizing that building a diverse pipeline is an issue for everyone to address. The bottom line: change requires intentionality.
Closing remarks: Charles finished the conference with thanks to all the participants for an engaging and thought-provoking event. He announced that Samuel Gray from State Farm won the perfect attendance award, and Tina Smith won the Whova app participation award.
Don’t forget to save the date for the Fall Annual Meeting and Education Conference to be held this year in Boston! We’re looking forward to seeing everyone Thursday and Friday, October 20 & 21, 2022!