One statistic is worrying for those working in Euro PPs. Issuance has fallen this year from €6.8bn to €4.5bn, according to Crédit Agricole.
One market’s failure is another’s success. The vanishing Euro PP volumes can be found on the books of bank lenders, which can offer attractive rates to small and medium sized enterprises.
But there is still some ground where banks fear to tread. To rebuild volume, the PP market needs to focus on smaller companies in need of lengthy maturities.
Banks will rarely offer unsecured debt of longer than five years, and their focus will always be on larger companies. The credit risk and deal execution for smaller firms is too costly. What’s more, putting together a transaction for an SME can take as long as six months.
The Euro PP market offers maturities beyond the five year mark, and investors are prepared to do the credit work themselves to fund smaller SMEs.
Although the market volume has sharply fallen, the number of Euro PP deals is stable. The first quarter of 2015 brought 25 deals for a total volume of €2.7bn. There were 25 deals in the first quarter this year too, but totalling only €1.39bn.
If the market is to regain its size, the focus must be on longer maturities, smaller borrowers and a format that exploits how nimble the product can be, to benefit borrowers and investors.