* ICMA leads working group
* Cost and time savings for issuers
* Best practice guide due at year-end
By Charlie Thomas
LONDON, June 13 (IFR) - A greater degree of teamwork from
bankers, investors and trade bodies could help with the creation
of a pan-European private placement market after a series of
The International Capital Market Association (ICMA) is
spearheading a coordinated effort to set the groundwork for a
European private placement market, designed to provide
meaningful competition to the US market.
The US private placement market raises around USD50bn a
year. That compares to the EUR7bn raised by the French market in
the past two years, while the German Schuldschein sector is
thought to raise around EUR15bn a year.
"I've not seen this level of collaboration in the 20 years
I've been looking at this," said Phil Smith, partner at Allen &
Overy and working group member. "We've been approached by all
aspects of the financial community, government and Treasury to
ask how we can make this work."
A pan-European market would bring cost and time savings for
issuers through standardising documentations and processes,
according to proponents of the plan, as well as diversification
and yield benefits for investors.
For the first time, the working group involves members from
a variety of interested trade bodies, including the Association
for Financial Markets in Europe (AFME) and the Loan Market
Association (LMA), as well as representatives from major
institutional investors, the HM Treasury and Banque de France.
For issuers, the advantage of a European market place will
be a "well defined, deeper market with clear common standards
that will make deals attractive to a wider variety of
investors," according to the ICMA's director Nicholas Pfaff.
Market participants hope that by developing a European
private placement market, smaller corporates that have had
trouble getting financing will be able to source funding more
Expectations are that crossover credits will be the first to
access it, although some hope that investment-grade issuers will
visit as it develops.
The development would come at an opportune time given that
the impact of new regulations on swaps, such as the European
Markets Infrastructure Regulation, could push European issuers
to switch away from the US markets, they said.
David Cleary, co-head of US private placements for corporate
DCM at Lloyds Bank, welcomed the move as a "really positive
step", but warned the practicalities of setting up a marketplace
which could cater for all investor needs could be challenging.
The challenge would be to take the best parts of the
existing French and German markets and bring them together, he
"If they don't, you'll end up with French investors only
investing in French companies on their own French private
placement market, and the same happening in Germany," he added.
The momentum for the project is such that even if the
environment changed and banks were able to start lending more
meaningfully again, many believe this pan-European private
placement market won't be derailed.
"Against the backdrop of the financial crisis, a need
developed to provide a diversified source of finance for
corporates," said Allen & Overy's Smith.
Investors are also keen on the strategy, given it provides
them with diversification of income, while a European market
which caters for crossover issuers would also provide buyers
with access to a whole new sector of potential credits.
"Pension funds are attracted to the characteristics of
placements - strong, stable cash flows and covenant protections
similar to a loan," said Calum Macphail, head of private
placements at M&G Investments, which has invested EUR5.6bn in
private placements since 1997.
He added that the illiquidity premium harvested through
investing in medium or long term assets which provided regular
income also gave investors more bang for their buck.
WORKING HAND IN HAND
The impact on existing private placement markets was
difficult to quantify. Many believed that while some impact
would be seen on the US market, for some issuers the well
trodden path to a deep, liquid market which understood them
would be worth paying the currency swap for.
Others felt that there was no reason why existing markets
couldn't work alongside a new European one, complementing it
rather than providing competition.
Ultimately, the demand for a European private placement
market will have to come from issuers, according to Lloyds'
Cleary. Given many corporates were awash with liquidity,
particularly in the UK, he anticipated a slow, incremental
demand initially, rather than a big shift.
The ICMA-led working group plans to produce a best practice
guide, facilitate the emergence of common market principles and
standardised documentation, and identify barrier to entry for
new issuers and investors by the end of 2014.
(Reporting By Charlie Thomas, editing by Julian Baker and