Trade Bodies Outline Best Practice for EU Corporate Private Placement

A guide aimed at developing best practice in Europe’s fledgling private placement (PP) market has been launched by the Pan-European Private Placement Working Group (PEPP Working Group) led by the International Capital Market Association (ICMA).

The ‘Pan-European Corporate Private Placement Market Guide’ sets out a voluntary framework for common market standards and best practices essential for development of a pan-European PP market. This is aimed at providing medium to long term finance to European mid-sized companies, in close alignment with the European Commission’s (EC) goal of bringing about a capital markets union.

ICMA notes that for many years, many mid-sized European companies have accessed the US private placement (USPP) market, making up a significant proportion of nearly US$60bn of annual issuance. The popularity of private placements has accelerated since the 2008 financial crisis, with markets in countries such as France and Germany providing borrowers with a local solution. However, until now, there has been no pan-European private placement market.

Demand for private placements is set to increase as the EU’s approximately 200,000 mid-sized companies look to diversify their sources of funding away from the traditional bank loan market, and view private placements both as an alternative and as an intermediate step towards the listed bond markets.

The guide builds on existing practices and documents used in the European bond and loan markets, especially the Charter for Euro Private Placements developed by the Euro PP Working Group, a French financial industry initiative. It is expected that the Guide will:

  1. Expand cost-effective funding opportunities for European mid-sized companies.
  2. Grow the European investor base for private placement transactions.
  3. Lower operation costs by promoting the use of standardised PEPP transaction documentation (recently released by the Loan Market Association (LMA) and the Euro PP Working Group).

The objective is that most European private placement transactions will eventually use the guide as the market standard. Going forward the PEPP Working Group will be further looking amongst others to promote investor-side incentives for PEPP financing and to lift remaining obstacles to its development.

The French and German domestic private placement markets issued approximately €15bn of debt in 2013 in addition to a further US$15.3bn raised in the USPP market by European companies.

Research by Standard & Poor’s (S&P) indicates that there is €2.7 trillion of debt that will need to be refinanced by mid-sized companies between now and 2018, at a time when banks continue to retreat from long term lending markets. There is as yet no pan-European private placement market.

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