FEW BANKERS DOUBT THAT THERE are good pockets of demand for European debt product in the US, but those pockets are sometimes expensive to pick. And the fact that US-targeted deals are generally not sold off an MTN platform is telling.
There are three different routes to the US that can be taken by non-US issuers and they vary principally in audience and in the amount of US-style due diligence that they require.
First among these is the long process of establishing a global SEC programme which has full US SEC registration, full disclosure and allows Yankee issues. This has principally been used by large issuers wanting to sell highly liquid bonds, but the fact that Eurobond transactions have been getting larger lessens the appeal of this channel.
"The global SEC-registered programme has been seen less and less," says Pieter Van Dyck, global MTN product manager at ABN Amro. There is also a category of supranational issuer that is exempt from SEC registration which uses the global MTN route.
Moreover, European houses tend to view global issues as a way for US houses to get mandates. Says one European investment banker: "Many are glorified US placements and a US house knows that if it convinces issuers to use a global format it has a 25% chance or so to get the deal as there are only four or five players who do them."
The second route is to issue Eurobonds with a full Rule 144A option, which exempts the securities from registration with the SEC.
Rule144A securities are not registered under the 1933 Securities Act and can only be sold to US investors if they are designated qualified institutional buyers (QIBs). As the latter includes many accounts that would normally participate in a Yankee issue, in terms of timing and transaction costs it presents a cheaper alternative.
Then there is the Eurobond-style global MTN programme that also includes Rule 144A, but where it is principally a private placement option to sell to the US. In this last option, a 10b-5 disclosure opinion is not immediately necessary but will typically be required when the issuer wants to access the public Rule 144A market at a later stage.
The key issue here is that a 10b-5 disclosure opinion runs out of date quickly if it is not used immediately after the launch of the programme.
Some issuers benefit from having a US and a Euro programme running at the same time. "If one is being updated, they can still use the other," says van Dyck.
Despite the best efforts of many US investment houses, few new programmes are being signed with the facility to sell to the US immediately.
That is partly because of the cost, intrusive disclosure requirements and sheer administrative burden of the process.
Going through the process of full SEC registration is, in the words of one issuer, "a nightmare, and a challenge to say the least".
And for a triple-A European financial services issuer, the US market is relatively expensive, although the market can often provide attractive opportunities for subordinated issuance.
In the structured market the US federal agencies have a clear competitive advantage with their callable issues.
The fact remains that for single-A to triple-A issuers, the best bid is in Europe - spreads are lower, fees are lower and legal costs are substantially lower.
"The situation is simple," says Paribas' MTN head Daniel Cogoi. "For a long time there has been no bid in the US for European issues. The fact that Euro-MTNs and MTNs in the US are called the same does not mean that they are the same; they are quite different markets."
And for lower-rated corporate issuers that have been used to funding in their home markets, Europe is the first hurdle to jump. "The US is the least of one's concerns," says Cogoi.
For instance, Tecnost - the funding vehicle for Olivetti - is operating a wait-and-see approach to issuance in the US.
"As far as accessing the US public markets is concerned for a company with Eu15.5bn of outstanding paper, we will examine the possibility at a later stage," says Luciano La Noce, director of corporate finance at Olivetti.
Tecnost's Eu9.4bn of FRNs mature in five years with no call, but the call can be exercised in June 2002. "Over the next two and a half years we can go on the market, including the US, to refinance the maturing FRN before the call is exercised, but the amount and timing will be determined by costs," says La Noce.
For Tecnost, US issuance is unlikely to be run off the Euro-MTN programme, but rather as one-off financings or run off a separate programme. Over time, La Noce expects the company to be able to raise money at a cheaper rate, but the minimum amount he wants to raise is Eu9bn over three years.
One factor that may prompt more European issuers to go to the US, however, would be if US demand for euros picked up.
If domestic US investors start buying euros, "it may even pay for issuers to have the 144A option incorporated in the programme and have updated legal opinions, which have so far been very limited," says Jalouneix at Morgan Stanley Dean Witter.