Fil illi ling th the gap ap a keystone for r th the Pan - - PowerPoint PPT Presentation

Fil illi ling th the gap ap – a keystone for r th the Pan European Priv rivate Plac lacement mark rket

Tues esday, 14 14 Apri ril l 20 2015 15 Lo London

Welcome Mark Boleat, Chairman, City of London

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

Introductory Comments Martin Scheck, Chief Executive, ICMA

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

Genesis of the PEPP Joint Committee, the Guide and intended next steps Nicholas Pfaff, Senior Director, Market Practice and Regulatory Policy, ICMA Katie Kelly, Director, Market Practice and Regulatory Policy, ICMA

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

The Pan-European Pri rivate Pla lacement Joint Committee

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The Mission of ICMA

• To promote resilient and well functioning international debt capital markets, which are

necessary for economic growth, and benefit market participants and their clients alike.

• Working actively with its members in all segments of the wholesale, buy and sell side,

ICMA focuses on a comprehensive range of regulatory, market and other relevant issues which impact market practices and the functioning of the international debt capital markets.

• The full mission statement is available on ICMA’s website:

http://www.icmagroup.org/About-ICMA/

Pan-European Private Placement Market

• The Pan-European Private Placement Market aims amongst other things to:
• target a wider European issuer base comprising medium-sized, often private,

companies representing a cross-over credit profile, as well as larger corporates seeking to diversify their funding mix

• considerably increase the availability of long term funding especially for medium

sized companies

• attract and provide diversification for institutional investors
• represent an intermediate market between the bank loan and debt capital

markets, and

• promote capital market integration across the EU.

Market Expectations for Private Placements

Source: A&O, YouGov – Survey of 218 European medium-sized companies

Market Potential

• €2.7 trillion of debt will need to be refinanced by mid-sized companies by 2018 (S&P

research). If even 5% of the bank loan refinancing requirement were sourced in the PEPP market, this would equate to €13.5 billion in PEPP issuance per annum.

The Pan-European Private Placement (PEPP) Joint Committee

Allen & Overy LLP Ashurst ASMEP-ETI Association of Corporate Treasurers Association for Financial Markets in Europe Association Française de la Gestion financière (AFG) Association Française des Investisseurs Institutionnels (Af2i) Association Française des Marchés Financiers (AMAFI) Association Française des Trésoriers d’Entreprises (AFTE) Banca IMI Banque de France (Observer) Bank of America Merrill Lynch Bank of Italy (Observer) Bonelli Erede Pappalardo LLP CMS Bureau Francis Lefebvre Comité de pilotage de l’Euro PP Crédit Agricole CIB Delta Lloyd DLA Piper European Private Placement Association (EU PPA) Fédération Bancaire Française (FBF) Fédération Française des Sociétés d’Assurances (FFSA) Fédéris Gestion d’Actifs DG Trésor (Observer) Groupement des entreprises mutuelles d’assurance (GEMA) Gide Loyrette Nouel AARPI Herbert Smith Freehills HM Treasury (Observateur) International Capital Market Association (ICMA) KBC Group Kings & Wood Mallesons Kramer Levin Naftalis & Frankel LGIM Linklaters Loan Market Association (LMA) Loyens & Loeff M&G Investments Mouvement des entreprises de France (MEDEF) Muzinich Natixis Asset Management Paris Europlace Paris IDF Chamber of Commerce and Industry Simmons & Simmons Slaughter and May Société Générale Standard & Poor’s Stifel Nicolaus Europe Limited TheCityUK The Investment Association White & Case

Objectives of the PEPP Joint Committee

• Promote the maximum level of cooperation between PEPP market participants,

associations and other stakeholders for the benefit of the entire market.

• Identify barriers to the development of the market, especially to the entry for new

issuers and investors, and propose appropriate remedies.

• Coordinate standardised documentation in loan and note form (LMA and French

Euro PPP Working Group released in January 2015).

• Produce a Pan-European Corporate Private Placement Market Guide (released in

February 2015) building on the French Charter for Euro Private Placements.

What is a PEPP?

• A medium to long term senior debt obligation (note or loan format), generally at

fixed rate, negotiated/issued privately to a small group of professional investors.

• Normally an unlisted and illiquid instrument for buy-to-hold, but nonetheless

registered and transferable.

• Long term debt funding for medium-sized and often unrated and/or private

companies, but can also accommodate larger corporate issuers.

• Arrangers will typically have an agency role.

Pan-European Corporate Private Placement Market Guide

• A non-binding framework of best practices for PEPP transactions, enshrining

common market practices and principles.

• Characteristics of a PEPP-compliant transaction as a private and unlisted debt

product.

• Roles and responsibilities of the borrower, investors, the arranger (if any), legal

counsel and other parties to a PEPP transaction.

• Documentation which may be required (from the Loan Market Association (LMA)

and the Euro PP Working Group).

• Key processes to be undertaken when issuing a PEPP and during its term i.e.

information disclosures and due diligence, monitoring of covenants as well as a description of key points to be addressed between the borrower and investors.

Future Priority Work Flows

• Market promotion : Guide roadshows in London, Paris, Italy, Brussels, Frankfurt,

Amsterdam.

• Market intelligence: monitoring and, when possible, quantifying market activity.
• Continued self-regulation: updating the Guide and documentation as the market

develops and evolves.

• Regulatory issues: Solvency II/Investor issues: treatment of PEPPs under Solvency II

with a focus on unrated issuers. Particular barriers to investment/issuance.

• Other barriers: tax treatment (e.g. withholding tax) of PEPPs in the relevant

European jurisdictions; restrictions on institutional investors lending in loan format.

Official Sector and Industry Support

• Andrea Leadsom, Economic Secretary to HM Treasury, said “…In December, we

announced a new exemption from withholding tax for private placements. In January, the Loan Market Association published standardised documentation. Today, ICMA’s guide gives a further boost to this emerging market by setting out common market standards and practices. With six major institutional investors now committed to invest around £9 billion in private placements and other direct lending to UK companies over the next five years, following our action at the Autumn Statement, we are starting to see the beginnings of a lasting private placements market, which will support growth in the UK and across Europe.”

• Michel Sapin, French Minister of Finance, said: “The Guide is a key element to foster

the development of a private placement market in Europe. This should be one of the building blocks of the Capital Market Union.“

Official Sector and Industry Support contd.

• Fabio Panetta, Member of the Governing Board and Deputy Governor of the Bank of

Italy, said: “Bank of Italy welcomes the launch of the Pan-European Corporate Private Placement Market Guide. It is a useful tool for developing a European private placement market for corporate debt and, consequently, for broadening and diversifying sources of funding to the European economy.”

• Daniel Godfrey, Chief Executive of the Investment Management Association (IMA),

said: “we can announce that over the next five years Allianz Global Investors, Aviva, Friends Life, Legal & General, Prudential and Standard Life intend to make investments of around £9 billion in private placements and other direct lending to UK companies.”

• Colin Tyler, ACT Chief Executive, said: “The Guide will be a big help in communicating

with and within mid-sized corporates about an alternative source of finance. For potential mid-sized issuers that have not used private placements before, it will give confidence that there are clear paths to issuing – it is not venturing into wild-West territory.”

Contacts

• privateplacements@icmagroup.org
• Katie.Kelly@icmagroup.org
• Nicholas.Pfaff@icmagroup.org
• www.icmagroup.org
• www.lma.eu.com
• www.euro-privateplacement.com

Panel: Filling the gap - The practical role of the Guide and the benefit to the market

Moderator: Calum Macphail, Head of Private Placements, M&G Investments Panellist: Jean Boissinot, Head of Banking and Financial Sector Analysis Division, French Treasury Panellist: Marte Borhaug, Head of Financial Services and Corporate Governance, Confederation of British Industry Panellist: Galina Dimitrova, Director, Markets, The Investment Association Panellist: John Grout, Policy and Technical Director, Association of Corporate Treasurers Panellist: Cecilia Poullain, Structurer, Natixis AM

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

Panel: PEPP Documentation

Moderator: Gary Simmons, Director, AFME High Yield Division Panellist: Clare Dawson, Chief Executive, Loan Market Association Panellist: Marc-Etienne Sébire, Partner, CMS Bureau Francis Lefebvre

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

ICMA CONFERENCE FILLING THE GAP - A KEYSTONE FOR THE PAN EUROPEAN PRIVATE PLACEMENT MARKET

THE EURO PP WORKING GROUP DOCUMENTATION

Marc-Etienne Sébire, Partner, CMS Bureau Francis Lefebvre

LONDON, 14 APRIL 2015

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

2 000 4 000 6 000 8 000 10 000 12 000 July 2013 : Amendment to the French Insurance Code February 2014 : Euro PP Charter published December 2012 : Lactalis September 2012 : Bonduelle (bond) July 2012 : Sonepar (loan) June 2014 : Launch of ICMA PEPP working group January 2015 : Publication of document templates by Euro PP Working Group

Development of the French Euro PP market

Volume (mn€)

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

More than 10 M € Raised since 2012 by French Borrowers

2012 2013 2014 Total amount of transactions (in million Euros) 3 195 3 284 3 311 Number of transactions 21 39 55 Average size of transactions (in million Euros) 152 84 60

 Increasing number of transactions  Reduction of average size of transactions

NB : Data from the table are extracted from external analysis and have been centralised by the Euro PP Working Group. Considering the specifities of the Euro PP market, and in particular the confidentiality of certain transactions, these figures should be analysed carefully Source: Comité de pilotage de la Charte Euro PP – Groupe Suivi de Marché - Estimations

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

A fast evolving market

GENERAL TRENDS  Emerging market  Dynamic market  Fast structuring of market under the leadership of Euro

PP working groups

ISSUE VOLUMES  3.4Mds€ raised in 6 months  10 bn€ raised since 2012 BORROWERS PROFILE  Market dominated by listed companies  2/3 transactions by borrowers having revenues

• ver 1,5bn€

 Increase of unlisted companies  Business diversification (holdings/coops/real estate)  Diversification towards smaller size borrowers  « repeats borrowers » & new borrowers INVESTORS POOL  A small pool of investors

• 3 lead orders
• Around ten active investors

 Extended pool of investors with gradual adoption of

different documentations

• Around thirty active investors
• Around fifteen emerging investors in particular
• utside France

TRANSACTIONS CHARACTERISTICS  A 150M€ average size of issue  Preferred maturity: 6 years  A 60M€ average size of issue  Emergence of issues on longer maturities CONDITIONS  Applicable rates close to 4%

• Ex:

Altarea-Cogedim: 150M€ raised in December 2012 to MS + 285 bps, i.e., 3.97% (7 year maturity)

 Tightening of rates and spreads

• Ex: Altarea-Cogedim: 80M€ 3% raised in June 2014

(7 year maturity)

MARKET IN 2012 CURRENT MARKET

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

Main characteristics of the market

 To avoid information

discrepancies

 Transparency on the use

• f proceeds

 Information undertaking  Pari passu rank with

banks

 Financial covenants  Extended Negative pledge  Sharing of security  Euro PP documentation has been structured and is based on these main characteristics  Unrated

BORROWERS

 Buy & Hold

INVESTORS

 Low liquidity

PRODUCTS INVESTORS NEEDS FOR TRANSPARENCY

 Pre-maturity call  Make-whole call

INVESTORS NEEDS FOR FLEXIBILITY INVESTORS NEEDS FOR PROTECTION

 Education  Promote good practices  Document templates

MARKET NEEDS FOR STANDARDIZATION

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

A large variety of formats to meet investors and borrowers needs

Euro PP different formats Loan Unsecured Secured Bond Unlisted Unsecured Secured Listed Unsecured Secured

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

Euro PP Working Group goals and participants

GOALS



Promote the growth of the Euro PP market to contribute to the financing of small and mid-sized companies and to meet the needs of investors by drawing on more mature markets (USPP, Schuldschein…)



Define a non binding implementation framework with best practices among borrowers, investors and intermediaries to support the development of the market



Help to the development of a Pan-European Private Placement market  Consensual approach taking into account the interests of the different stakeholders Authorities Borrowers represented by AFTE Investors Professional associations Intermediaries Law firms

• Initial document templates drafted by CMS Bureau Francis Lefebvre, Gide and Kramer Levin
• On the basis of existing market practices
• Discussions and validation of the document templates by the Euro PP Working Group
• Consensual and balanced approach between the different interests

(borrowers/investors/intermediaries), as per the Euro PP Charter

• Published in January 2015
• Available free of charge in French and English on www.euro-privateplacement.com
• 2 formats:
• Bond (in cooperation with ICMA)
• Loan
• Common principle: pari passu rank with the existing banking debt with the same characteristics
• Some differences resulting from the format retained and market practice (transferability,

redemption at the option of the borrower, scope of covenants and events of default)

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

The Euro PP master agreements

Filling the gap – a keystone for the Pan European Private Placement market London, 14 April 2015

Euro PP comparison and structure

Euro Private Placement Euro Private Placement « light » Standard Eurobond Investment Grade Standard Eurobond Investment Grade Euro Private Placement « light »  Financial covenants  Limitations on acquisitions, dividend, etc. on a case by case basis  Clauses similar to loan agreements Standard Eurobond Investment Grade  Pari passu with banking debt  Step-up depending on the financial covenants  Stronger cross defaults  Senior unsecured  Change of control  Cross defaults Almost similar to loan Close to loan Pure Bond  Mid-caps with low leverage  Small-cap with low leverage  Mid-cap with a structurally significant debt  Large-caps, émetteur fréquent  Having already issued/with best credit profile  Bolloré, Plastic Omnium, LFB  Ubisoft, Tessi  Bonduelle, Orpéa  Touax, Soufflet

Keys clauses Borrowers type Examples Other clauses / considerations 

Make-whole redemption clauses  Fall-away clauses in case of investment grade rating  Specific clauses depending on borrower’s business

Fil illi ling th the gap ap – a keystone for r th the Pan European Priv rivate Plac lacement mark rket

Tues esday, 14 14 Apri ril l 20 2015 15 Lo London