SME debt disintermediation innovation at work

30 Jun 2016

In the current low interest-rate environment, allocations to private debt investments and other direct lending strategies can be attractive for institutional investors looking for yields and diversification opportunities. In this article we discuss the latest developments.

In the aftermath of the 2008 crisis, the financial industry had to undergo significant reforms, paving the way for the disintermediation of banks with strong support from regulators who were keen to reduce the overall size of banks’ balance sheets. In Europe in particular, the heavy reliance of companies on bank credit was addressed with various initiatives favouring nonbank financing of corporates, while at the same time allowing institutional investors to achieve the much soughtafter diversification of their assets. Initiatives such as opening up bond markets to mid caps with an unrated or non-investment grade risk profile, the introduction of fiscal incentives for bond issuance in Italy and the launch of dedicated Euro PP funds in France focused on mid-cap companies willing to diversify their sources of funding or take a first step towards the eventual issuance of public debt. Most of these
new sources of funding allow companies to maintain a high level of confidentiality if needed. To that extent, the French example is interesting. France has actively promoted Euro Private Placements for companies not large enough to tap the public fixed-income capital markets. However, since the start of this market in 2012, the bulk of issuers are companies with a turnover of more than EUR 300 million.

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