The European market looks to be following the U.S.' lead, with more issuers opting to phase out short-term commercial paper, replacing it with longer-term straight bond or asset-backed financing, say bankers and analysts. "When business goes bad, or gets tight, a company can't roll over its CP, and when it can't do that, it's out of business," says Steve White, co-head of European ABS at Morgan Stanley in London, of the shift in the market. "You can't fund a long-term business plan with short-term funding," he adds.
"There will always be a market for CP in Europe, but the present [economic] circumstances make it difficult for CP funding," particularly for companies which have seen their credit quality deteriorate recently, says Alexander Popov, credit strategist at Bear Stearns in London. This year has already seen record bond issuance in the U.S.--about $81 billion--in part, because corporates are phasing out CP funding. Popov expects the same to happen in Europe, albeit on a smaller scale than in the U.S. Still, the European market is gearing up for a flood of new issuance with the likes of Italy's Olivetti, France Telecom, Deutsche Telekom and German utility RWE, to name a few, set to tap the markets. Companies with securitizable assets could pursue ABS options, notes Popov, adding that FT and DT are already expected to launch ABS deals this year. "We're indirectly pitching ABS as an alternative to CP, but it's still a revolutionary concept for a lot of European businesses," says Morgan Stanley's White.