Filling the gap – a keystone for the Pan European Private Placement market Tuesday, 14 April 2015 London
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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
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
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