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Schuldscheine crossing finish line at full throttle

Race car burning rubber
By Elly Whittaker
17 Nov 2016

The Schuldschein market is finishing its busiest year ever with the foot on the gas, with more than 20 deals in the market at once. Investor demand is not expected to dip as a result of the scrum, but some deals may not see brimming levels of oversubscription, according to bankers.

As well as being a year for record issuance — with many predicting total volumes of €25bn and over — the number of first time and non-German issuers has grown through the year. More than 40% of transactions in the third quarter were from debut borrowers, according to an HSBC report.

In particular, a number of French borrowers have come to the market in recent weeks, such as Folli Follie, Group SEB, Econocom and Ipsos.

Another French firm, Teleperformance, may also issue Schuldscheine to refinance part of its $1.825bn acquisition loan, according to one of the firm’s relationship bankers.

The French deals are joined in the market by German Schuldschein stalwarts Lufthansa — seeking a €200m deal — and healthcare group Fresenius.

Fresenius, in particular, is a well-liked credit in German debt markets, and its €400m deal had already received commitments in excess of the target size just two working days after launching.

“It is receiving a great response, the marketing volume is well surpassed,” said a banker on the deal.

But smaller, less well-known deals will not suffer for lack of investor demand so late in a busy year, according to two bankers.

“We don’t see any of our deals struggling,” said one head of corporate DCM at a bank in Germany. “They are going very well, almost surprisingly well.”

However, some investors may struggle to cope with the documentation for the high number of deals, the banker said.

“Some investors are saying that they have capacity issues, they are bottlenecking because of all of the deals.”

Another bank based in Frankfurt said that the effect of the busy market would be lower oversubscription and potentially less borrower-friendly pricing.

“The orderbooks will be smaller for some issuers than in normal times, and maybe they will not price as tightly.”

Welcoming Schuldscheine

One deal catching investors’ attention is the €200m equivalent deal for Swiss frozen bakery supplier Aryzta. The Schuldschein was launched at the end of October, after the borrower had planned to issue a public bond but changed plans at the last minute.

Aryzta held a roadshow in October for a five year benchmark Eurobond but instead chose to issue Schuldscheine.

The Schuldschein has tranches of three, five, seven and 10 year tenors with fixed and floating rate coupons. The deal is aimed at Asian investors, with Mizuho — an unusual name in the arranging role — as a lead bank. BNP Paribas, Helaba and HSBC are also in arranging roles.

One banker at an Asian institution said that the deal was an opportunity to build a lending relationship with a European borrower.

“If you are interested in European companies, you can consider this. It is easy to handle because it’s settled through payment not through a clearing house,” he said.

An investor at a French asset manager said that it was a concern that Aryzta would now come to the Schuldschein market.

“For the same issuer, with the same credit, you can fail in one market and succeed in another with similar documentation. That doesn’t seem right.”

Orderbooks for Aryzta’s deal close on December 7 and the deal settles on December 17.

Fresenius’s busy year

Fresenius’s promissory note has tenors of five, seven and 10 years, with longer tenors available on request.

The re-offer spreads are 80bp-95bp for the five year tranche, 100bp-115bp for the seven year and 120bp-135bp for the 10 year.

The tranches are offered at fixed rates (over euro mid-swaps) and floating rates (over six month Euribor). Both benchmarks have zero floors.

BayernLB, Deutsche Bank, DZ Bank and NordLB are arrangers.

Order books close on December 14.

The German company, headquartered in Bad Homburg vor der Höhe, is rated Baa3/BBB-/BBB-.

The company has had a busy year in capital markets, having landed the largest dollar Schuldschein ever in March. Fresenius US Finance II completed a $400m Schuldschein, described as the largest-ever dollar deal by three bankers at the time.

Fresenius US launched the deal in January at $200m, growing it to $400m after strong interest.

(Additional reporting by Shruti Chaturvedi)

By Elly Whittaker
17 Nov 2016