UK lenders rejected from Schuldschein amid Brexit uncertainty

Mersen, a French technology manufacturer, will not accept bids from UK-based lenders for its new Schuldschein “in anticipation of a potential Brexit”. Three bankers away from the transaction said they have also discussed excluding UK lenders with other borrowers.

  • By Silas Brown
  • 26 Mar 2019
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This is the first time lenders with a booking location in the UK will be excluded from the Schuldschein market because of uncertainties around Brexit. 

Helaba and Société Générale are arranging Mersen's seven year transaction, which begins at €60m and offers pricing ranges of 130bp-150bp over six month Euribor for floating rates notes, and over mid-swaps for fixed.

In Schuldschein documentation, there is usually a section outlining investor parameters by type and region, specifying, for example, Swiss/European Union or financial/institutional. 

In Mersen's discussions around this section, the borrower and arranger decided for the first time to exclude UK-based lenders.

A banker familiar with the deal, who noted that the decision was a shame, said: “The reasoning was simply — does excluding the UK lenders matter that much to the transaction? Probably not. And then you think about the sources of uncertainty in the UK regarding future payments and transfers and so on. So I think they [Mersen] just wanted to play safe.”

In the first line of the invitation email sent to investors, even before the salutation Helaba writes:

“As per the draft documentation for this SSD and in anticipation of a potential BREXIT, investors with booking location in the UK will not be considered as eligible lenders by the borrower.”

One banker away from Mersen’s deal said: “Though I haven’t seen any borrower actually do it [until Mersen], this has been a topic that is discussed quite a lot. It’s not clear how withholding taxes will work — and given that, why take the risk?”

UK-based lenders are somewhat of a rarity in the market, though some Asian banks place orders from offices in London, as do some institutional investors. 

It is plausible they may have to start booking from mainland Europe if they would like to participate in Schuldschein transactions, said one banker. 

“We are discussing such topics, given the unclear view of withholding taxes and gross-ups etc,” he said. 

Mersen entered the market for the first time in 2016, placing €60m of seven year Schuldschein notes in December that year.

  • By Silas Brown
  • 26 Mar 2019

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