The Schuldschein private-debt market is recovering from a jittery first quarter, with accelerating issuance likely to amount to EUR 20bn this year, helped by a tighter focus on credit quality, Nordic placements and fintech platforms, says Scope Ratings.
The market rebounded in Q2 after meagre Q1 issuance when financial troubles at Schuldschein (‘SSD’) issuers Carillion and Steinhoff weighed on sentiment.
At least 50 transactions took overall issuance to more than EUR 8bn in H1 2018, still 30% down from the same period last year. Another 25 mostly small-ticket transactions are in the pipeline and set close before the summer break.
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“Activity is buoyant, but we’ll need to see some big-ticket transactions above EUR 500m for the market to significantly exceed EUR 20bn this year,” said Sebastian Zank, analyst at Scope.
Renewed investor and arranger focus on credit quality—with no recurrence among SSD issuers of the crises at Carillion and Steinhoff—justifies the average issuance’s low risk premium.
The 100bps median spread above the reference rate for 5-year debt in H1 2018 corresponds to public bond issues of BBB-/BBB investment-grade rated corporates.
“It’s true low spreads reflect the predominance of solidly financed German firms placing Schuldschein debt, but our data show that issuer leverage is increasingly concentrated below a 3x net debt/EBITDA multiple* in the year before debt is placed,” says Zank. Scope has observed fewer outliers in terms of highly leveraged companies as it did in H1 2017, a trend highlighted in Scope’s SSD report last year Has pricing reached the floor?. This underscores the market’s investment-grade credentials and shows how investors rather than issuers are back in the driving seat.
Non-German deals accounted for roughly 30% of H1 SSD placements. Nordic companies including Finnish conglomerate Wihuri, Danish Agro, and Danish Crown were among debut issuers. Deals from NAC Aviation and Finnish shipbuilder Meyer Turku are in the works.
Fintech platforms, such as credX, vc trade, Debtvision, Synd-X and FinnestPro, have become important venues for arranging SSD deals, used by a variety of experienced and debut issuers, from Deutsche Telekom to Puma and Verbund.
“Fintech platforms have the potential to make a long-term difference, attracting new issuers and widening the SSD investor base,” says Zank. Going digital has advantages, particularly on placement costs for smaller transactions, though there are challenges—particularly for investors in assessing less well-known issuers intending to place SSD debt on their own via a platform.
*Scope adjusted debt, including pensions and operating leases, divided by lease-adjusted earnings before interest, taxes, depreciation, amortisation