European Private Placement as an alternative

Evertjan Manuels, Head of Corporate Fixed Income Origination

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Interview with Evertjan Manuels, Head of Corporate Fixed Income Origination Rabobank Nederland

In early March, the European Central Bank decided to lower its interest rates further. Because of the current meagre cover ratios, this decrease put even more pressure on realising good returns, which is increasingly difficult in the current climate of historically low interest rates. Government bonds, historically seen as being ‘without risk’, are no longer interesting, since the revenue made off of such securities is next to nothing after adjustment for inflation. This presents challenges for retirement funds and insurance companies, concerning their long-term commitments.

European Private Placement may be the answer

In their search for the best returns, Private Placements (long term financing for businesses) may be the answer, says Evertjan Manuels, Head Corporate Fixed Income Origination Rabobank Nederland. “Higher returns are not the only advantage of Private Placements for institutional investors; there’s also the fact that the risks are shared because of co-financing by banks. The arrangement is in fact pari passu, with the same collateral and covenants for banks and investors. PPs are also often based on banks’ documentation. Often, the banks and the investors participate in the same documentation. Moreover, the investor benefits from the bank’s knowledge of clients and credit.

For businesses, Private Placements are an interesting financing alternative because they can attract long-term capital in a market in which banks are constantly forced by new regulations to be more selective about granting loans. Moreover, with a private placement one’s figures are kept private, which is especially important to larger family businesses.”

Growth of Private Placements market

The Private Placements market has a great deal of potential. In the Netherlands, 80% of businesses are still financed by banks, and only 20% use alternative means. In the United States, these figures are reversed. “We are not expecting our markets to become quite like the American one, but we do think we’ll see a 50/50 divide. The European market for Private Placements was worth EUR 12.8 billion (146 deals) in 2015, nearly double the 2014 figures. And those figures are probably even higher in reality, due to the private nature of this market where many deals are not made public. The figures presented here are based on the European Private Placement League Table of Standard & Poor’s and do not include the German (Schuldschein) and US Private Placement markets. After including the Schuldschein and the European portion of the USPP market, the total Private Placement market in Europe was worth EUR 45 billion last year, with more than 350 issuers. (Source: S&P).

The European Private Placement market is for banks, companies, and institutional investors. At the European Private Debt Forum, we will be talking about the way the market will develop in the future, discussing recent cases and subjects such as regulations and pricing. In short, it will be the perfect opportunity for us to further explore the opportunities that this market has to offer.

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