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As far as bankers are concerned, the German investment community is there for the taking. The only question is how to persuade corporates of the attractions of the bond market. Bank market funding costs may be increasing, but as corporates have flexed their muscles to target tight pricing in the bond market, their experiences have been mixed.

Landwirtschaftliche Rentenbank has laboured long and hard to differentiate itself from the troubled Landesbank sector and take its rightful position nearer Kreditanstalt für Wiederaufbau. Investors now appreciate the German agency's strengths, but far from becoming complacent, Rentenbank is pursuing new funding avenues.

Yet more ingredients for rapid growth in German capital markets activity have been put in place: a levelling of the playing field in the banking sector; tax changes easing corporate restructuring; and reform of the pension system. Sceptics might argue that such hopes have proven misplaced in the past. But this time the potential rewards may be too big to ignore.

Although most German states raise their debt domestically, either through the Schuldschein market as or joint Länder transactions, more and more are following the lead of Saxony-Anhalt and tapping the international capital markets, offering investors quasi-government exposure at a spread to the Bunds. But even as the number of broad minded Länder increases, the future existence of public bonds that they issue is being debated.

The latest threat to the Pfandbrief model comes from Dublin where DePfa, one of the biggest jumbo issuers, has relocated its public sector business. But a favourable, albeit competitive, regime has not been enough to offset contracting lending opportunities to Germany's public sector, which has caused a slump in Pfandbrief issuance this year. Now the mortgage banks are having to consider lower quality public sector loan collateral and compete aggressively to expand their mortgage lending.

The Landesbanks have until 2005 before they lose their state support and are brought into line with private banks. To overcome the competitive shock, they will have to become more cost conscious and develop broader funding sources for their borrowing strategies. And speculation is already mounting, not just about individual Landesbanks' future ratings, but how the whole sector will finally shake out.

The big bang in capital markets activity resulting from Germany's pension reforms never happened. The political truth is that the controversial new pension funds are being eased in gradually. Assets will take so long to accumulate that predictions of a flourishing market in longer dated corporate credits remain speculation. And in the meantime, issues like RWE's 15 year deal are just exceptions to the rule.

Kreditanstalt für Wiederaufbau's euro benchmark programme, launched this year, is just the latest move by the German development bank to position itself as close to the Bund as possible. The bonds have achieved high levels of liquidity, supported by the new EuroMTS trading platform. Replicating this success in the dollar market is one of KfW's aims for 2002.

First Union is wrapping up a $175 million revolver for Danville, Va.-based Dimon, and is on the road as lead arranger with a $175 million note offering for the leaf tobacco merchant. Ritchie Bond, senior v.p. and treasurer, commenting through a company official, said refinancing portions of the current debt with additional long-term debt improves capital structure flexibility while likely increasing the effective cost of borrowing in at least the short term. First Union led the last revolver and Deutsche Bank is a lead manager on the bond deal. Closing of both the bond and credit facility is expected at the end of the week. The company official declined to comment on pricing, which on the current $250 million revolver arranged in June 2000, is LIBOR plus 31/ 4%, according to Capital DATA Loanware.

It is still early days onExopack's $110 million credit launched by BNP Paribas, CIT Group and Heller Financial two weeks ago -- but bankers suggest the asset-based deal will be a relatively safe bet right now. The credit includes a $60 million revolver, a $30 million term loan "A" and a $20 million capital expenditure facility. There is strong collateral and asset coverage, which is what lenders are looking for right now, bankers said. Pricing on the pro rata is LIBOR plus 3% based off a grid, noted a banker.

Golden Tree Asset Management managed to close a $700 million high-yield collateralized debt obligation comprised of loans and bonds despite the moribund high yield market and the fact the fund was priced and sized on Sept. 10, one day prior to the World Trade Center attacks. The closing of the fund was on Sept. 28.