MTN traders will often look down their noses at CP and are only too quick to call it redundant. Since MTN programmes are now able to provide maturities as short as one month, some say there is no need for a CP facility. Some traders say a five year non-callable one month MTN can work just as well as a CP trade. And, looking at MTNWare, almost one fifth of all non-syndicated debt issued since the start of 1997 has been for less than one year. That said, according to CPWare, 47 Euro-CP programmes have been signed since the start of 1997. And the international capital market still shows a strong demand for Euro-CP as outstandings total $10.5 billion. "CP has a separate niche because not everyone wants to do a Euro-MTN programme and not everyone can afford to do one," explains one market expert. To launch a Euro-MTN programme is costly and subsequently requires a separate pricing supplement for each issue. With CP the notes are issued electronically and more cheaply. Christophe Frankell, head of funding at Caisse d'Amortissement de la Dette Sociale (CADES), says: "CP is cheaper than any bank loans. It is simple to use once the documentation is completed and it is very easy to trade. Liquidity is important for CADES and the CP market is very good for this." Of the 47 Euro-CP facilities signed since January last year, some were from issuers who signed a Euro-MTN facility concurrently. Examples of those issuers include Shell and Statkraft. There is the common belief that by having both facilities in place, an issuer can provide investors with more choice. Some experts say that having a Euro-CP programme is similar to being able to do structured Euro-MTNs and it simply makes for more flexible funding. Halvor Liaaen, section head, treasury, at Statkraft says: "It's got a lot to do with Emu. A lot of companies want to broaden their investor base. We feel that we have more to offer investors by having a Euro-CP programme." There will be the same funds or banks where people look at different ends of the curve but that share an identical credit committee. Although Euro-MTNs are becoming more liquid for short-run maturities there's not much cann-ibalisation between MTN investors and CP investors. Euro-CP tends to attract investors who come to the market daily. Statkraft has yet to issue off its Euro-MTN facility and has made one issue for $20 million off its Euro-CP programme but this is not indicative of any preference. Liaaen at Statkraft explains: "We don't intend to use the Euro-CP as a core funding alternative although for some businesses, that might be a good idea. But that's not how we intend to do it. Our Euro-CP facility is basically meant for increasing our short-term financial flexibility." Shell has a slightly different approach. "Euro-CP by nature is more operational since it is short term," says a spokesman for Shell. It looks as if the MTN programme will be used more opportunistically although, according to Shell, both products are expedient. The group's spokesman says: "Our MTNs are posted at fairly aggressive levels, in line with our objective to reduce our overall cost of borrowing. As a group we do not envisage needing to access the MTN market for long maturities - not for longer than five years." As a result, Shell has $1.25 million outstanding off its Euro-CP facility but has not yet issued MTNs. CADES, on the other hand, has a massive $5 billion outstanding off the facility it signed in June 1996. "Our global CP programme is one which is always active. It diversifies our funding capabilities since, for short-term funding, the other main option available to CADES is a domestic BT French franc programme. The global CP programme offers CADES both Euro and US markets," explains Frankell at CADES. With the international capital markets gearing up for Emu and borrowers who have previously relied on their domestic markets being forced to adopt a more international perspective, CADES reckons the CP programme has allowed it to adapt to changes in the market. That said, the entity is signing an MTN programme within the next 20 days. But this won't diminish the importance of CP. Frankell says: "CP will certainly continue to be very popular but how will Emu effect the markets? And how will the domestic markets work alongside the Euro market?" Whatever the answers, CP seems a fair bet to satisfy issuer's funding needs in the years to come.
August 11, 2000
