Following a rather slow start into 2017, the corporate Schuldschein (SSD) market picked up strong momentum in Q2, leading to a volume of about EUR 12bn from almost 70 deals closed during the first half of the year. While total volumes for this half year fell short of H1 2016 levels because of the lack of jumbo deals, it was the busiest half-year in terms of transactions. This increase was very much driven by non-German issuers, which, for the first time, contributed half of the deals.

New record low in pricing

In view of the record low in average pricing – as measured by the median spread for five-year euro SSD tranches placed in H1 2017, which stands at just 118 bsp compared to 138 bsp in 2016 – investor perception of the debt investment remains very favourable. However, the range in pricing is considerable, from 55 bps up to 300 bps, indicating a strong heterogeneity among issuers.

SMEs and non-German issuers display crossover or high-yield leverage

The median leverage of 2.7x in H1 2017 still suggests that the market is in good health. However, Scope highlights that more than 30% of issuers in H1 2017 exhibit debt levels of more than 4.0x – commensurate with a lower high-yield credit quality. Another 10% display debt levels in the crossover area between investment and non-investment grade.

“It is clearly positive for the debt market that SMEs and non-German corporates are increasingly taking alternative routes to funding debt. However, it is concerning that a significant number of these issuers, whilst benefiting from the strong market sentiment and record-low pricing, display non-investment grade features”, says Sebastian Zank, director at Scope's corporates team and author of the report.

Outlook 2017

In light of H1 2017 activities, Scope reiterates its expectation that the market volume in 2017 is likely to exceed the threshold of EUR 20bn. The placement of jumbo transactions will largely determine whether or not this volume will approach the record 2016 levels of EUR 26bn. With regard to pricing, however, Scope doubts that it is possible for the market to go any deeper.

The new report is available for download HERE.