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The shift toward more conservative pricing in the public bond market might see Schuldschein (SSD) issuance come close to matching record volumes of debt raised in 2016 and 2017 particularly given the private debt market’s reputation for holding up well in times of uncertainty such as the 2008/09 credit crunch and the 2011/12 euro crisis. The termination of the ECB’s bond-buying programme could stimulate issuer and investor interest in the market.

“Other factors should also underpin growth, from the greater use of digital platforms, which offer a speedier and cheaper way to place issues, to the market’s growing appeal for issuers and arrangers outside Germany,” says Sebastian Zank, analyst at Scope.

Total issuance in 2018 of around EUR 24.5bn was nearly 10% short of EUR 27 billion issued the previous year though the number of transactions held steady at 150, according to Scope analysis.

“Troubles at two big former SSD issuers refocused investor attention on credit risk in the first half of last year, cooling issuance and investor appetite, with only EUR 8bn issued in the period,” says Zank.

“But as the year wore on, signs investors that were scrutinising issuers more closely, even to the point that some transactions were scrapped, helped restore confidence,” Zank says. Among planned SSD issues cancelled early in the year were Ledvance, Austriacard, Adva Optical, and Agfa-Gevaert more recently. Coupon adjustments during the placement phase, as at Freenet and ADO Properties, hinted at investors’ increased risk awareness. Selective defaults (Gerry Weber and Folli Follie) and required recapitalisations for the sake of avoiding covenant breaches or failure of refinancing of some other SSD issuers (Aryzta and Kier) in H2 2018 did little to harm sentiment.

The year-end placement of several jumbo deals confirmed the market’s restored fortunes: EUR 700m from France’s Faurecia, EUR 500m from Switzerland’s Emil Frey Gruppe, EUR 500m from Germany’s Lidl and EUR 500m from Switzerland-based LafargeHolcim.

“Rather than the SSD returning to its German roots, we have seen more evidence that the market is maturing and becoming more international,” says Zank. While SSD issues from corporates outside of core markets Germany and Austria remained scarce in early 2018, after the alarm bells triggered by the troubles at Carillion and Steinhoff, issuance picked up strongly during H2 2018, with prominent debutants including Faurecia, Switzerland’s Rehau and Liebherr and Encevo from Luxembourg. The segment has a growing Scandinavian flavour with debut transactions from Finland’s Cargotec and Wihuri, Denmark’s Danish Crown and Norway’s Elkem.

“The growing list of Nordic, French, Benelux and Italian banks acting as SSD arrangers also point to future international growth if they encourage domestic corporates to tap the market,” says Zank. The creation of a new LMA documentation standard should help by benefiting arrangers without previous experience of the SSD segment.

Use of proprietary or shared digital platforms—such as vc trade, DEBTVISION, Synd-X, FinPair, CredX, firstwire, FinnestPro or Erste’s permissioned blockchain platform—should gain further traction in 2019. The platforms lower placement costs and facilitate small deals, a feature of the SSD market where many repeat issuers undertake transactions of less than EUR 100m each.