The development of Europe’s mid-market sector will rely on further educating companies about opportunities in private funding, concluded experts at a recent event hosted by credit ratings agency Standard & Poor’s (S&P).
The panel at the London event included representatives from the Association of Corporate Treasurers (ACT), employers’ organisation the Confederation of British Industry (CBI) and business and financial adviser Grant Thornton UK . Panelists agreed that private funding markets are showing signs of growth and that the conditions for further development are encouraging.
“Despite a return of bank liquidity, there is a lot to be gained outside of the traditionally accepted, reliable, understood banking market,” said James Ashton-Bell, the CBI’s head of financial services policy. “Partnering with an institution that has a vested interest through private equity investment will likely result in a higher commitment from their side, for instance.”
However, a transition to alternative funding sources presents a challenge for some. “For smaller companies used to a particular avenue of finance, it can be difficult to change tack,” said Stephen Baseby, the ACT’s technical director.
“For mid-sized companies, the European private debt market allows a business to explain complex credit stories to lenders who have time to listen and understand,” said Shaun O’Callaghan, head of debt advisory at Grant Thornton UK . “Often this can be more successful for a sub-investment grade credit than raising money from the equity or debt capital markets.”
Transparency is therefore seen as key. “It is all about educating the market and solving complicated needs with expert solutions,” said Ashton-Bell. “We promote anything that helps to bridge the credit information gap. The focus should be on smaller companies which struggle to explain the position and risks of their business. Anything that can shine a light on that can help to develop the mid-market.”
According to Alexandra Krief, S&P’s head of mid-market evaluations and credit estimates “mid-sized companies must improve their credit risk transparency if they are to capitalise on Europe’s growing alternative lending market.”
S&P has developed Mid-Market Evaluation (MME) as a rating benchmark specially aimed at mid-sized companies and providing independent opinion of their creditworthiness. The agency has also published figures tracking the growth of the private debt market and partnered with researcher Private Placement Monitor (PPM) to produce the first annual league table for private placement deals in Europe.
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