The European MTN market has long been starved of good corporate supply. Bankers get excited when borrowers such as Nestlé, which this week printed a A$175m five year deal, come out to play. And rightly so, since investors snap up the paper like nobody’s business.
The MTN market offers some unique advantages over both bank funding and the public bond market. So why aren’t corporations making the most of it?
Standard & Poor’s estimated late last year that around three quarters of corporate funding was provided by the loan market. That not surprising. Loans are cheap and flexible — and good relationship builders to boot.
But while the loan market may be a corporate treasury’s bread and butter, the more gourmet option of the private placement market is not to be sniffed at.
Much like public bonds, issuing MTNs opens firms up to a completely different investor group. And those investors are hungry for corporate paper. For them, it offers an attractive alternative asset class to FIG and SSA credits, by far the dominant borrower groups in the MTN market.
There are handy benefits over the public bond market too. MTNs offer bespoke lending arrangements, as well as cheaper funding than is available in the public space. The loan market typically provides maturities of up to five years, but a private placement gives the option of locking in longer-term funding.
It’s not all plain sailing, of course. To issue in the MTN market, companies need to establish their reputation with investors by having an existing presence in public bonds. In any case, many big firms are cash rich at the moment, having benefited from sentiment moving against financial names during the credit crisis.
But MTN investors are desperate for quality corporate paper, meaning that firms could easily pick and choose deals to suit their exact needs. And it's quick: no roadshows, no opening and closing of books.
So, flexibility and great value for money, all rolled into one tasty little MTN-flavoured package. Treasurers of the world, unite! You have nothing to lose but your cost of funding.