Filling the gap a keystone for the Pan European Private ... · Market promotion : Guide roadshows in London, Paris, Italy, Brussels, Frankfurt, Amsterdam. Market intelligence: monitoring

Filling the gap – a keystone for the Pan European Private Placement market

Tuesday, 14 April 2015London

WelcomeMark Boleat, Chairman, City of London

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

Introductory CommentsMartin Scheck, Chief Executive, ICMA

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

Genesis of the PEPP Joint Committee, the Guide and intended next stepsNicholas Pfaff, Senior Director, Market Practice and Regulatory Policy, ICMAKatie Kelly, Director, Market Practice and Regulatory Policy, ICMA

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

The Pan-European Private Placement Joint Committeehosted by the City of London CorporationLondon, 14 April 2015

The Mission of ICMA

To promote resilient and well functioning international debt capital markets, which are necessary for economic growth, and benefit market participants and their clients alike.

Working actively with its members in all segments of the wholesale, buy and sell side, ICMA focuses on a comprehensive range of regulatory, market and other relevant issues which impact market practices and the functioning of the international debt capital markets.

The full mission statement is available on ICMA’s website:

http://www.icmagroup.org/About-ICMA/

Pan-European Private Placement Market

The Pan-European Private Placement Market aims amongst other things to:

• target a wider European issuer base comprising medium-sized, often private,companies representing a cross-over credit profile, as well as larger corporatesseeking to diversify their funding mix

• considerably increase the availability of long term funding especially for mediumsized companies

• attract and provide diversification for institutional investors

• represent an intermediate market between the bank loan and debt capitalmarkets, and

• promote capital market integration across the EU.

Market Expectations for Private Placements

Source: A&O, YouGov – Survey of 218 European medium-sized companies

Market Potential

€2.7 trillion of debt will need to be refinanced by mid-sized companies by 2018 (S&P

research). If even 5% of the bank loan refinancing requirement were sourced in the

PEPP market, this would equate to €13.5 billion in PEPP issuance per annum.

The Pan-European Private Placement (PEPP) Joint Committee

Allen & Overy LLP AshurstASMEP-ETI Association of Corporate Treasurers Association for Financial Markets in Europe Association Française de la Gestion financière (AFG)Association Française des Investisseurs Institutionnels (Af2i)Association Française des Marchés Financiers (AMAFI)Association Française des Trésoriers d’Entreprises (AFTE)Banca IMIBanque de France (Observer) Bank of America Merrill Lynch Bank of Italy (Observer)Bonelli Erede Pappalardo LLP CMS Bureau Francis Lefebvre

Comité de pilotage de l’Euro PPCrédit Agricole CIB Delta Lloyd DLA Piper European Private Placement Association (EU PPA) Fédération Bancaire Française(FBF) Fédération Française des Sociétés d’Assurances (FFSA)Fédéris Gestion d’ActifsDG Trésor (Observer) Groupement des entreprises mutuelles d’assurance (GEMA) Gide Loyrette Nouel AARPI Herbert Smith Freehills HM Treasury (Observateur) International Capital Market Association (ICMA) KBC Group Kings & Wood MallesonsKramer Levin Naftalis & Frankel

LGIM LinklatersLoan Market Association (LMA) Loyens & LoeffM&G Investments Mouvement des entreprises de France (MEDEF) MuzinichNatixis Asset Management Paris EuroplaceParis IDF Chamber of Commerce and Industry Simmons & Simmons Slaughter and May Société GénéraleStandard & Poor’s Stifel Nicolaus Europe Limited TheCityUKThe Investment Association White & Case

Objectives of the PEPP Joint Committee

Promote the maximum level of cooperation between PEPP market participants, associations and other stakeholders for the benefit of the entire market.

Identify barriers to the development of the market, especially to the entry for new issuers and investors, and propose appropriate remedies.

Coordinate standardised documentation in loan and note form (LMA and French Euro PPP Working Group released in January 2015).

Produce a Pan-European Corporate Private Placement Market Guide (released in February 2015) building on the French Charter for Euro Private Placements.

What is a PEPP?

A medium to long term senior debt obligation (note or loan format), generally atfixed rate, negotiated/issued privately to a small group of professional investors.

Normally an unlisted and illiquid instrument for buy-to-hold, but nonethelessregistered and transferable.

Long term debt funding for medium-sized and often unrated and/or privatecompanies, but can also accommodate larger corporate issuers.

Arrangers will typically have an agency role.

Pan-European Corporate Private Placement Market Guide

A non-binding framework of best practices for PEPP transactions, enshrining common market practices and principles.

Characteristics of a PEPP-compliant transaction as a private and unlisted debt product.

Roles and responsibilities of the borrower, investors, the arranger (if any), legal counsel and other parties to a PEPP transaction.

Documentation which may be required (from the Loan Market Association (LMA) and the Euro PP Working Group).

Key processes to be undertaken when issuing a PEPP and during its term i.e. information disclosures and due diligence, monitoring of covenants as well as a description of key points to be addressed between the borrower and investors.

Future Priority Work Flows

Market promotion : Guide roadshows in London, Paris, Italy, Brussels, Frankfurt, Amsterdam.

Market intelligence: monitoring and, when possible, quantifying market activity.

Continued self-regulation: updating the Guide and documentation as the market develops and evolves.

Regulatory issues: Solvency II/Investor issues: treatment of PEPPs under Solvency II with a focus on unrated issuers. Particular barriers to investment/issuance.

Other barriers: tax treatment (e.g. withholding tax) of PEPPs in the relevant European jurisdictions; restrictions on institutional investors lending in loan format.

Official Sector and Industry Support

Andrea Leadsom, Economic Secretary to HM Treasury, said “…In December, we announced a new exemption from withholding tax for private placements. In January, the Loan Market Association published standardised documentation. Today, ICMA’s guide gives a further boost to this emerging market by setting out common market standards and practices. With six major institutional investors now committed to invest around £9 billion in private placements and other direct lending to UK companies over the next five years, following our action at the Autumn Statement, we are starting to see the beginnings of a lasting private placements market, which will support growth in the UK and across Europe.”

Michel Sapin, French Minister of Finance, said: “The Guide is a key element to foster the development of a private placement market in Europe. This should be one of the building blocks of the Capital Market Union.“

Official Sector and Industry Support contd.

Fabio Panetta, Member of the Governing Board and Deputy Governor of the Bank of Italy, said: “Bank of Italy welcomes the launch of the Pan-European Corporate Private Placement Market Guide. It is a useful tool for developing a European private placement market for corporate debt and, consequently, for broadening and diversifying sources of funding to the European economy.”

Daniel Godfrey, Chief Executive of the Investment Management Association (IMA), said: “we can announce that over the next five years Allianz Global Investors, Aviva, Friends Life, Legal & General, Prudential and Standard Life intend to make investments of around £9 billion in private placements and other direct lending to UK companies.”

Colin Tyler, ACT Chief Executive, said: “The Guide will be a big help in communicating with and within mid-sized corporates about an alternative source of finance. For potential mid-sized issuers that have not used private placements before, it will give confidence that there are clear paths to issuing – it is not venturing into wild-West territory.”

Contacts

[email protected]

[email protected]

[email protected]

www.icmagroup.org

www.lma.eu.com

www.euro-privateplacement.com

Panel: Filling the gap - The practical role of the Guide and the benefit to the marketModerator: Calum Macphail, Head of Private Placements, M&G InvestmentsPanellist: Jean Boissinot, Head of Banking and Financial Sector Analysis

Division, French TreasuryPanellist: Marte Borhaug, Head of Financial Services and Corporate

Governance, Confederation of British IndustryPanellist: Galina Dimitrova, Director, Markets, The Investment AssociationPanellist: John Grout, Policy and Technical Director, Association of Corporate

TreasurersPanellist: Cecilia Poullain, Structurer, Natixis AM

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

Panel: PEPP DocumentationModerator: Gary Simmons, Director, AFME High Yield DivisionPanellist: Clare Dawson, Chief Executive, Loan Market AssociationPanellist: Marc-Etienne Sébire, Partner, CMS Bureau Francis Lefebvre

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

ICMA CONFERENCE

FILLING THE GAP - A KEYSTONE FOR THE PAN EUROPEAN PRIVATE PLACEMENT MARKET

THE EURO PP WORKING GROUP DOCUMENTATION

Marc-Etienne Sébire, Partner, CMS Bureau Francis Lefebvre

LONDON, 14 APRIL 2015

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

0

2 000

4 000

6 000

8 000

10 000

12 000

July 2013 :Amendment to the French Insurance Code

February 2014 : Euro PP Charter published

December 2012 : Lactalis

September 2012 : Bonduelle (bond)

July 2012 :Sonepar (loan) June 2014 :

Launch of ICMA PEPP working group

January 2015 :

Publication of

document templates by

Euro PP Working

Group

Development of the French Euro PP marketVolume (mn€)

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

More than 10 M € Raised since 2012 by French Borrowers

2012 2013 2014

Total amount of transactions(in million Euros)

3 195 3 284 3 311

Number of transactions 21 39 55

Average size of transactions(in million Euros)

152 84 60

Increasing number of transactions

Reduction of average size of transactions

NB : Data from the table are extracted from external analysis and have been centralised by the Euro PP Working Group. Considering the specifities of the Euro PP market,

and in particular the confidentiality of certain transactions, these figures should be analysed carefully

Source: Comité de pilotage de la Charte Euro PP – Groupe Suivi de Marché - Estimations

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

A fast evolving market

GENERAL

TRENDS Emerging market

Dynamic market

Fast structuring of market under the leadership of EuroPP working groups

ISSUE

VOLUMES 3.4Mds€ raised in 6 months 10 bn€ raised since 2012

BORROWERS

PROFILE

Market dominated by listed companies

2/3 transactions by borrowers having revenuesover 1,5bn€

Increase of unlisted companies

Business diversification (holdings/coops/real estate)

Diversification towards smaller size borrowers

« repeats borrowers » & new borrowers

INVESTORS

POOL

A small pool of investors

3 lead orders

Around ten active investors

Extended pool of investors with gradual adoption ofdifferent documentations

Around thirty active investors

Around fifteen emerging investors in particularoutside France

TRANSACTIONS CHARACTERISTICS

A 150M€ average size of issue

Preferred maturity: 6 years

A 60M€ average size of issue

Emergence of issues on longer maturities

CONDITIONS

Applicable rates close to 4%

Ex: Altarea-Cogedim: 150M€ raised inDecember 2012 to MS + 285 bps, i.e., 3.97% (7year maturity)

Tightening of rates and spreads

Ex: Altarea-Cogedim: 80M€ 3% raised in June 2014(7 year maturity)

MARKET IN 2012 CURRENT MARKET

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

Main characteristics of the market

To avoid information

discrepancies

Transparency on the use

of proceeds

Information undertaking

Pari passu rank with

banks

Financial covenants

Extended Negative pledge

Sharing of security

Euro PP documentation has been structured and is based on these main characteristics

Unrated

BORROWERS

Buy & Hold

INVESTORS

Low liquidity

PRODUCTS

INVESTORS NEEDS FOR

TRANSPARENCY

Pre-maturity call

Make-whole call

INVESTORS NEEDS FOR

FLEXIBILITY

INVESTORS NEEDS FOR

PROTECTION

Education

Promote good practices

Document templates

MARKET NEEDS FOR

STANDARDIZATION

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

A large variety of formats to meet investors and borrowers needs

Euro PP different formats

Loan

Unsecured

Secured

Bond

Unlisted

Unsecured

Secured

Listed

Unsecured

Secured

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

Euro PP Working Group goals and participants

GOALS

Promote the growth of the Euro PP market to contribute to the financing of small and mid-sizedcompanies and to meet the needs of investors by drawing on more mature markets (USPP, Schuldschein…)

Define a non binding implementation framework with best practices among borrowers, investors andintermediaries to support the development of the market

Help to the development of a Pan-European Private Placement market

Consensual approach taking into account the interests of the different stakeholders

Authorities

Borrowers represented by AFTE

Investors

Professional associations

Intermediaries

Law firms

Initial document templates drafted by CMS Bureau Francis Lefebvre, Gide and Kramer Levin

• On the basis of existing market practices

Discussions and validation of the document templates by the Euro PP Working Group

• Consensual and balanced approach between the different interests (borrowers/investors/intermediaries), as per the Euro PP Charter

Published in January 2015

Available free of charge in French and English on www.euro-privateplacement.com

2 formats:

• Bond (in cooperation with ICMA)

• Loan

Common principle: pari passu rank with the existing banking debt with the same characteristics

Some differences resulting from the format retained and market practice (transferability, redemption at the option of the borrower, scope of covenants and events of default)

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

The Euro PP master agreements

Filling the gap – a keystone for the Pan European Private Placement market

London, 14 April 2015

Euro PP comparison and structureEuro Private PlacementEuro Private Placement « light »Standard Eurobond Investment Grade

Standard Eurobond Investment

Grade

Euro Private Placement « light »

Financial covenants

Limitations on acquisitions,

dividend, etc. on a case by case

basis

Clauses similar to loan agreements

Standard Eurobond Investment

Grade

Pari passu with banking debt

Step-up depending on the

financial covenants

Stronger cross defaults

Senior unsecured

Change of control

Cross defaults

Almost similar to loanClose to loanPure Bond

Mid-caps with low leverage Small-cap with low leverage

Mid-cap with a structurally

significant debt

Large-caps, émetteur fréquent

Having already issued/with best

credit profile

Bolloré, Plastic Omnium, LFB Ubisoft, Tessi Bonduelle, Orpéa Touax, Soufflet

Keys clauses

Borrowers type

Examples

Other clauses /

considerations

Make-whole redemption clauses

Fall-away clauses in case of investment grade rating

Specific clauses depending on borrower’s business

Filling the gap – a keystone for the Pan European Private Placement market

Tuesday, 14 April 2015London