IFR Private Placements Roundtable 2015
Private placements have received a lot of attention in Europe in the past year to 18 months. They have been captured fully by the Capital Markets Union debate in Europe as a potentially new funding alternative to bank lending for the benefit of SMEs.
At the same time, investors are increasingly looking to the private route to gain access to decent-sized positions in a market where garnering allocations in the primary bond market has become something of a lottery. Secondary markets are effectively shut for size and syndicate managers are allocating the lion’s share of heavily over-subscribed new issues to a small number of top-end buy-side clients. This is leading to a huge amount of frustration as under or unallocated investors seek alternative routes to lines of stock.
Beyond the vagaries of today’s market environment, the PP route has, of course, traditionally enabled buyers and sellers to quietly negotiate tailor-made solutions, be it on a bilateral or club basis. The elasticity of the PP market means that solutions can be found for rated or unrated issuers seeking US$20m all the way up to US$2bn across a range of maturities and structures.
IFR’s Private Placements Roundtable gathered a panel of experts to discuss the development of the European PP market from its current embryonic though arguably promising state. Will it ever rival its US cousin? Is there a real need for a pan-European market? Is the current market fragmented (negative nuance) or merely segmented by country and issuer type (positive nuance) that offers horses-for-courses solutions and price and deal structure arbitrage opportunities?
As is the way with such things, however, there were no definitive answers and it’s all ultimately a matter of opinion. There is clear evidence, though, that the originally French domestic Euro PP market is starting to morph into a more international market – both on the issuer side and investor side, and from a listed market into a hybrid listed/unlisted market.
In this context, the documentation templates issued early in 2015 by the Loan Market Association, the Euro PP Steering Committee and the Pan-European Private Placement Working Group will facilitate the internationalisation of the European market where there’s a need – and will also enable sell-side agents (if they are used) to nuance outcomes to suit the specifics of a given situation.
The German-anchored (and unlisted) Schuldschein market is being pulled into the debate and while few market participants expect it to merge with the Euro PP market, some do envisage a market segmented by issuer types, where in a Euro-PP/SSD bridge scenario, German crossover and high-yield credits head to the private placement bond market while more solidly investment-grade names make for the loan-hybrid Schuldschein market.
While issuance data doesn’t really offer any answers at this point, it is worth pointing out that corporate SSD issuance of a little over €12bn; Euro PP issuance of €4.6bn and US$13bn of European issuance in the USPP market amounted to around US$32bn in 2014.
That’s already two-thirds the size of the global market for USPP and suggests that as new EU jurisdictions awaken to the opportunities afforded by private placements in Europe this market will offer a valuable funding avenue. In a world where creating alternatives is key, you can’t argue with that.