Schuldschein and Green Bonds: Alternative financing

Schuldschein is reaching new heights. Why so?

With issues of EUR 20.2 billion, 2015 was a record year for corporate Schuldscheine – an increase of 67% compared to 2014. And 2016 could be even better. Where does this success originate from?

Over the last few years, the market for 'Schuldscheindarlehen' (Schuldschein loans) to private companies has grown substantially. That growth was particularly turbulent in the wake of the financial crisis, with a few notable peaks. 2008 was such a peak year, with almost double the volume of 2007. The record of 2008 fell last year, with a volume of EUR 20.2 billion. And 2016 has also been quick out of the starting blocks. Raoul Heßling, Schuldschein expert at BNP Paribas:

"We are expecting a volume of more than EUR 5 billion in the first quarter, with a good mix of large and small companies, both in Germany and abroad. If the trend continues, 2016 will surpass 2015."

Annual Corporate Schuldschein Volume and Deal Flow

Sources : Thomson Reuters LPC

The main reason for those record years is the volatility of the bond market. At that level, 2008 was a difficult year, with much economic nervousness and the bankruptcy of Lehman Brothers. Raoul Heßling:

"The Schuldschein market is very stable and is well-shielded from that sort of volatility. The system is normally used by mid-cap companies that are not listed on the stock exchange. Due to the difficult circumstances in 2008, during which the bond market practically stalled for a period, some companies noted that Schuldscheine could be a good alternative. I am referring to names such as BMW, Daimler, Siemens and Deutsche Telekom. As a result, the volume soared to around EUR 19 billion in 2008."

The worst loss was suffered in 2009. The bond market picked up again and Schuldscheine returned to their normal volume and users. From 2010 to 2014, the volume fluctuated around the normal EUR 10 billion and users were mainly mid-cap companies. And then came the peak of 2015. Raoul Heßling:

"With more than EUR 20 billion, that was a new record year. I see various reasons for this. Firstly, the Schuldschein has become better known as a financing tool, among both issuers and investors. Secondly, there was more merger and acquisition activity over the past year. Quite a number of companies have discovered that Schuldscheine are an efficient way to raise money. Thirdly, the bond market returned to being volatile in the second half of the year and listed companies gravitated towards the Schuldschein market again. ZF Friedrichshafen, a global player in the automobile sector, entered into a record deal of EUR 2.2 billion, for instance, while Daimler and Mann+Hummer each entered into transactions of EUR 1.1 billion."

Meanwhile, 2016 looks to be on course to match or surpass 2015. Is this becoming the new norm for Schuldscheine? Raoul Heßling remains cautious: "I am in no position to make forecasts."

Largest deals in 2015

Sources : Thomson Reuters LPC