“The recession triggered by pandemic-related supply-chain disruptions, lockdowns and other healthcare protocols has weighed heavily both on the willingness of issuers to tap the Schuldschein market and on investor appetite for private debt, particularly in vulnerable sectors such as aviation, automotive, travel and leisure,” said Sebastian Zank, analyst in the corporate ratings team of Scope and author of a report on Schuldschein activity, out today.

Also, a number of Schuldschein (SSD) issuers are in financial difficulty, including Deutsche Lufthansa (government bailout), Nanogate and 1.FC Kaiserslautern (insolvency proceedings), Benteler (debt restructuring) and Schlemmer Group (default). The market is also awaiting the outcomes of the likely financial restructuring of struggling automotive supplier Benteler (which might involve SSD investors) and whether experienced SSD issuer Tönnies can stabilise its finances in the months ahead.

On the plus side, heavy over-subscription of recent new deals from financially solid names such as Bosch, Wacker Chemie, Voith and Clariant clearly shows underlying investor confidence in the SSD market. In the first half, a number of experienced SSD issuers tested the waters with short-dated deals – several issuing 400-day tranches via digital platforms – which underscores the appeal and flexibility of the SSD market for supplementing short-term liquidity at comparatively low cost.

First-half risk premiums rose by just around 20bp for five-year tranches against comparable deals in 2019, a modest increase in context of the collapse in economic activity in the first half and much stronger spread increases in the public bond market. Issuance volumes in the first half fell by 35% to around EUR 9.5bn and even that number was boosted by the EUR 2bn deal brought by Bosch in June. It is noteworthy that demand for sustainability-linked issuance continued to extend into the SSD market: ESG-linked issuance represented 15% of H1 deals compared with around 10% in 2019.

New issuance from companies outside German-speaking Europe fell sharply as did issuance from debut SSD issuers: 85% of first-half deals came from existing SSD issuers. Given the turbulent times, ‘safety first’ was the priority for SSD issuers, arrangers and investors in the first half.

“We expect the safety first trend to be short-lived,” said Zank, "It should reverse through the second half of the year as the European economy starts to recover. We also believe the lack of debut and international issuers in the first half is temporary. As business returns to normal, we expect the SSD market to refocus on placements from newcomers.” 

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