As the Schuldschein is something of a private market, data on transaction numbers and annual volumes vary from source to source — but there is no doubt it has been a busy year so far. According to Bloomberg data, €22.5bn has been placed in the first three quarters. LBBW’s internal data shows just under €21bn in more than 100 transactions.
Both sets of data exclude a €2.1bn transaction that closed on Monday from ZF Friedrichshafen via Commerzbank, Helaba, LBBW and UniCredit, so from either set the market is in good stead to challenge the €27bn record volume placed across 2017.
“I’m sure every arranger is very confident about the year, with a lot of first time issuers and a second quarter that saw a lot of European transactions — for example, from Benelux, France and Scandinavia,” said Matthias-Wolfgang Hoffmann, senior Schuldschein originator at LBBW.
League tables gained acceptance in the Schuldschein market back in 2012, and each year bar one since then LBBW has held the top spot. As it stands after the third quarter close, LBBW placed €4.37bn Schuldscheine across 47 deals. BayernLB followed with €3.18bn across 27, then Helaba with €2.89 across 29, according to Bloomberg data.
“Our reasons for success are very good long-term client relationships, as well as excellent relationships with investors — with close to 600 investors regularly subscribing to our transactions,” said Hoffman. “We have a full value chain and offer the whole product range — documentation, paying agency services, the ability to write comprehensive research reports as well as good legal counselling. Since we have done it for a long time, hopefully a good degree of trust has developed between our clients and LBBW.”
Old dog, new tricks
Two instances stand out. In May, Reliance Industries, the conglomerate headquartered in Mumbai and founded by Dhirubhai Ambani, closed the €150m debut Schuldschein launched in March via KfW Ipex-Bank and LBBW. The initial target size, although this often increases during marketing, was €150m, and the two arrangers managed to close the deal at €405m.
The transaction was heralded as one of the most extraordinary deals ever to hit the centuries-old market, given the origin of the company and the fact it may be the first borrower to issue a Schuldschein via a non-European entity. Non-European borrowers have issued but, according to GlobalCapital records, always via a European entity.
“This deal could not have occurred five years ago,” said a Schuldschein market veteran, at the time the Schuldschein was placed. “As the lender base has internationalised, more diverse credits can use the product.”
Before Reliance, the most exotic borrowers to enter the market were Etihad Airways, Israel Chemicals and Petrobras, as well as the International Investment Bank, headquartered in Moscow.
“Hats off to LBBW, we certainly weren’t expecting this deal,” said one banker from a non-German bank.
But perhaps more significantly, LBBW alongside ING brought the first sustainability-linked note to market, for industrial machiney manufacturer Dürr.
Dürr’s deal, like environmental, social and governance-linked (ESG) loans, is tied to its ESG rating, in this case from EcoVadis. It now has a 51 score out of 100, putting it in the top 30% of companies EcoVadis reviews. After the deal settles, the coupons can be reduced by 2bp if Dürr can achieve a rating upgrade from EcoVadis to 62. If its rating falls by an equal number of points, to 40, the coupon will be raised by 2bp.
Many market participants, including Hoffman, feel this structure will probably be replicated by others in the market, and could generate further deal flow.
“After Dürr, we have had many discussions with clients that think sustainability-linked notes are very interesting also in light of their own sustainability strategy — especially listed corporates already incorporating sustainability reports in their annual reporting,” said Hoffmann. “We are certain more ESG-related Schuldschein financings like Dürr are coming.”