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German Corporates Hold Key To Supply

A huge untapped issuer base of about 1,500 unlisted middle-market companies in Germany each with over €250 million in revenues could transform the European high-yield market--if only bankers could convince them to issue bonds.

A huge untapped issuer base of about 1,500 unlisted middle-market companies in Germany each with over €250 million in revenues could transform the European high-yield market--if only bankers could convince them to issue bonds.

So far only the low hanging fruit has been picked by investment bankers, said Edward Eyerman, senior director at Fitch Ratings in London. Most of the Mittelstand companies that have come to market, including Duerr, Schefenacker and Gildemeister, are among the minority in Germany that have listed equity and report on a quarterly basis under International Accounting Standards.

The bulk of the Mittelstand, however, are unrated family-owned businesses with long-standing relationships with local banks and no history of being accountable to third party creditors. As a result, they shy away from improving disclosure to access the bond markets. Only one such company, German engineering firm Peri GmbH, has turned to the high-yield market and sold a €250 million Baa1-rated bond in December.

Several factors are preventing a flood of high-yield paper out of Germany, said Eyerman. For one, there is a historical bias against financial disclosure in Germany, and for another, there are a lot of domestic alternatives to bonds in the form of loans and hybrid products such as silent participations and profit participations.

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