The New Normal
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Having gained momentum in 2008 and 2009 during the height of the credit crisis, when both the loan and bond markets were largely shut down, Schuldschein volume peaked in 2008 at nearly $19 billion. In 2012, Schuldschein issuers returned to the market via a series of refinancings to support over $14 billion of issuance. In 2013, as the loan and bond markets saw increased liquidity amid qualified deal flow, issuers who were able to tap these markets did so – often at the expense of Schuldschein issuance.
Smaller corporates remained steady issuers however. Lending to the Mittelstand segment increased in 2013, with total issuance of €3.1 billion, up from €2.4 billion in 2012. Schuldschein issuance by Mittelstand companies now accounts for nearly 40% of the market, similar to levels seen before the financial crisis when Mittelstand companies accounted for as low as 5% of issuance in 2008.
There have also been some new trends in the Schuldschein market, with French corporates in particular issuing large amounts of Schuldschein in 2013 in an effort to diversify their investor base. French corporates issued €1.1 billion of Schuldschein in 2013, slightly below the record of €1.3 billion in 2012. French corporates now account for 13 percent of the Schuldschein market, an all-time high.
Schuldschein as Europe’s Private Placement Market
The German Schuldschein is often mentioned whenever someone brings up the prospects of a pan-European private placement market. And why not? They have been used by SME borrowers in Germany for years as a first step into the capital markets. Moreover, they have the added benefit of flexible tailoring to suit specific borrower funding needs, with US dollar and British pound tranches having been placed in addition to the typical euro tranches.
Despite its structural benefits, Schuldschein are not the only form of liquidity among smaller European issuers – or even necessarily the preferred asset. European issuers continue to favour the US private placement market, where they raised €12.8 billion of funding in 2013, compared to €8 billion raised from German Schuldschein.
Additionally, there is also the EuroPP initiative in France and the EPPA initiative out of Amsterdam. Both are relative newcomers to the capital markets, with EuroPP being launched in 2012 and EPPA being launched in 2013. Rounding out liquidity options there is the long-established UK private placement market. Will one of these become Europe’s private placement market of choice or will we continue with regional markets for the time being? Only time will tell.