There was a time when the only way for an investment bank to gain prominence in the MTN market was to be the firm arranging the most programmes.
With the advent of greater transparency in the market, the importance of notching up mandates, arrangerships and then dealerships is waning.
But it is not quite gone. Although the role of intermediaries is changing as the market itself changes, relationships - and understanding the needs of issuers - are still key.
AN ISSUER'S RELATIONSHIP with the intermediaries that arrange - and deal on - its programme ranges widely depending on the nature of the issuer.
For the more frequent borrowers, the relationship is not as tightly knit as for a smaller or debut issuer.
Consolidation of intermediaries is a rising trend, one that will make a difference for all issuers. In the future there will be a natural consolidation to those houses with a focused effort.
It may not be as pronounced as in other areas of the capital markets as the barriers of entry to investment banks into the Euro-MTN dealing market are low. Even privately placed deals are becoming increasingly difficult to keep under wraps. One of the reasons this is so is that dealers want to know what their competitors are up to.
Their paranoia may be justified. "Not so long ago 20 or so dealers had a 4% market share each. Now it's more like the top six or seven houses jostling for 80% of the market between them," says Gavin Eddy, executive director at Warburg Dillon Read.
At Morgan Stanley Dean Witter, executive director Oliver Jalouneix puts the proportion of trades accounted for by the top five or six dealers at between 50% and 75% of volumes, marginalising smaller dealers to an extent.
"However, this is not going to be an immediate process as there are still very small barriers to entry for dealers, a lot of banks involved and reverse enquiry is well spread due to the diversity of the business," he says.
The approach to dealer groups depends on the issuer. Many large agency issuers, such as the EBRD for instance, are open to a variety of practices - including quality dealers with reverse enquiries, dealer-for-a-day initiatives and regular dealers.
As long as all parties have a copy of the programme and the documentation, they can respond rapidly. Other issuers use dealer groups to prefer them with beneficial pricing and volume. Less frequent issuers tend to be more reliant on dealer groups.
But for all issuers, good product distribution capability is key as is a good relationship and local markets experience.
"If you talk to a bank borrower the element of arrangership or dealership on the programme is of limited interest. We are open to any enquiry from any professional as long as it's within the price range we want," says Eugene Yurist, head of international funding at Landesbank Baden-Württemberg - which has done more than 70 trades off its programme this year alone.
He adds: "There are better ways of motivating performing or non-performing counterparties than getting them on or off dealer groups."
At the extreme, the World Bank went as far as to rewrite its
debt issuance programme to make it dealer-free two years ago,
allowing it to be totally open to all-
comers. "The World Bank's GDIF (global debt issuance facility) has no appointed dealers and no volume limitations. In contrast with other borrowers, we use it to launch the full array of transactions, from a $4bn benchmark issue to a $10m complex structured financing," says Gumersindo Oliveros, director of treasury finance at the World Bank.
He asserts that this has served the supranational well, allowing it to respond quickly and cost-effectively to market opportunities, but adds that it is not a winning formula for all issuers. Dealers argue that the World Bank could afford this type of facility because of its track record with investors and intermediaries.
For smaller borrowers, the game is different: dealer sponsorship is important for borrowers that use MTNs to build a presence in the market or secure market-making commitments for their transactions.
The house that arranges an MTN
programme then tends to be involved for the long term relationship. With potentially smaller issues, dealer groups do not have to be as extensive as for large frequent borrowers.
"The crop of new, smaller borrowers are appointing smaller dealer groups as they do not want to confuse the market for their inaugural euro deals," says one investment banker.
For debut issuers, the role of the arranger in helping to differentiate the issuer is key. Since EMU investors that had traditionally been ensconced in their home markets have been introduced to a wealth of new names, so issuers need to differentiate themselves, which can be tough.
"Post EMU, when investors have had to make credit plays instead of currency plays in order to outperform their benchmarks, it has become very important for new issuers coming to the market to explain themselves properly to the potential investor base" says Julia Ward, director at Lehman Brothers.
For instance, Lehman arranged a Eu3bn programme for Belgo-Dutch banking and insurance company Fortis in April and lead managed the issuer's inaugural Eu1.25bn deal.
"The inaugural issue was important for Fortis for it to correctly position its name in the market, while investors were relatively familiar with the story," says Ward. "It was important to the success of the deal for fund managers to meet the company's management and hear how the group was changing."
Understanding issuers' needs is critical. And investment banks now are keener than ever to illustrate that they are in touch with investors and issuers alike.
"Salomon historically had neither the resources nor a great deal of interest in arranging programmes, its goal was to develop distribution capabilities," says Marc Falconer, vice president at Salomon Smith Barney.
"We never viewed arrangership or dealership league tables as a true measure of ability in the market - and still don't.
"Nowadays, however, things are different in that not only do we get a large number of dealerships as a result of placement but also we have the resources and desire to win arrangership mandates as a way of developing relationships with borrowers and helping our public markets business."
The new demands of monetary union have accompanied a change in the way many investment banks arrange their desks.
For instance, Merrill Lynch arranges its desks on a regional basis and structures are handled together on the same desks. The Euro-MTN desk concentrates on private placements and structured deals and the smaller non-syndicated deals. A dedicated group separate from trading handles origination.
DEUTSCHE BANK IS fostering a flat structure in its MTN operations and ABN Amro has desks throughout Europe, the US and Asia that focus on private placement MTNs, liasing with its Eurobond sales force and channelling reverse enquiries through single routes.
For Nomura International, "MTNs are a fundamental part of our syndicate operations and consequently are a key issue in relationship management with many borrowers," says Andrew Asbury, managing director and head of fixed income syndicate.
"Where others have a separate unit approach, we view our clients' funding in a unitary manner rather than splitting up benchmark issues and MTN private placements."