The old model is broken. Historically, when bank lending was cheap, borrowers chose loans over private placements. When banks were unwilling to lend, PPs would fill the void.
But now banks are busting with cheap cash and are even willing to lend it, but still no loans.
EMEA market volumes are down year-to-date to 38% ($364bn) of 2015s numbers, which were already down from the year before.
Though the Schuldschein market has had a storming year, European PP and cross-border US PPs are also depleted. The answer for these beleaguered markets is to join forces to give borrowers a diversified offering.
In some cases, this will involve banks offering a credit facility alongside a PP, as seen in recent Euro PP deals.
In other cases, a PP should be an accessory to a large loan, or used to refinance acquisition loans, as seen in so many Schuldscheine last year such as ZF Friedrichshafen’s record €2.2bn deal.
The clear benefit for the loan market of bringing PPs into the financing fold is to be able to leave longer tenors to PP buying institutional investors, while a credit facility supplies the bulk of the volume within the three to five year maturity range favoured by banks.
Germany's Schuldscheindarlehen market, a product which falls somewhere between a PP and a loan, may see its strongest volumes ever this year. Loans could mimic some of that success by being aligned more closely with private placements.