Marenave Schiffahrts, a German shipping trust, has launched a €100m commercial paper programme. Other European corporates ought to consider similar moves. If they did so, they might find a willing buy-side.
Historically, the dominant sector in CP has been financial institution borrowers. But concerns over the seaworthiness of European banks have led US money market funds to sail their cash back across the Atlantic.
At the same time, European money market funds have also progressively steered clear of bank exposure, while the rating downgrades of a number of periphery banks mean many of the larger triple-A rated funds have been unable to invest, even if they wanted to.
In addition, euro funding SSA issuers have been netting investors’ cash as the euro/dollar basis swap continues to run in their favour, keeping banks at bay in terms of dollars.
Across the ocean, investors have also been unwilling to take the plunge into either near-zero yield short term Treasury debt or higher yielding — but potentially sovereign exposed — bank debt. US corporate borrowers have plugged that hole, according to a recent Fitch Ratings report. A rising tide of corporate debt has attracted CP investors, including issuers with low investment grade issuer default ratings but “healthy liquid positions and improved leverage profiles”, the agency says.
But it's a different story in Europe, where corporate CP outstandings have been stuck at around 10% of total outstandings for the last year — in spite of the fact that CP dealers consistently talk of strong demand for euro corporate paper.
Many corporates in the region are well funded with term debt. But that doesn't mean they should pass up opportunities to gain a presence in shorter markets if they arise. Investors are running out of options. Time to give them a few more.