Schuldschein set up for strong 2022 on jumbo deals, ESG-linked transactions, refinancing
The Schuldschein (SSD) private debt segment dramatically found favour with investors late last year, putting the market on course for a return to pre-pandemic volumes in 2022 particularly as central banks wind down corporate bond purchases.
Schuldschein-issued debt rose by 6% to around EUR 20.6bn last year, ahead of our upwardly revised expectations of EUR 16-18bn and up from EUR 19.4bn in 2020. The fourth quarter accounted for a third of all placements in the year, worth EUR 7.6bn in more than 50 deals.
“We saw the return of big-ticket deals from larger companies, notably from Austria, France and Germany, and signs that the internationalisation of the market is regaining momentum lost in 2020 and early 2021 with companies from outside Germany accounting for 40% of debutant issuers last year,” says Sebastian Zank, deputy head of corporate ratings at Scope Ratings.
“Another feature was further growth in ESG-linked issuance – running ahead even of the broader corporate bond market - though with attached penalties and incentives for target-based deals pitched at such low levels as to amount to not much more than window-dressing,” says Zank.
Almost all target-linked ESG deals were structured with incentives and penalties, unlike ESG-linked bonds which are mostly just linked to a penalty but not an incentive. “However, the penalties/rate increases and incentives/rate reductions, ranging from -5bps to +10bps (with majority being +/- 2.5-5bps), have so far proved rather slim,” says Zank.
Scope sees three principal factors driving further growth in the market this year:
- Switch from public bonds to private debt: The phase out of the ECB’s PEPP by March 2022 and the gradual reduction of net asset purchases under the CSPP asset purchase programme over the next few quarters will likely lure some bigger IG-rated companies back to SSD segment.
- Refinancing: A large proportion of new deals will likely flow from the refinancing maturing tranches, particularly those placed in 2015 and 2017 but also from shorter maturities placed between 2019 and 2021. The overall volume of SSD tranches maturing in 2022 stands at a significant of EUR 19.2bn including tranches above EUR 250m from frequent SSD users such as Kaufland Dienstleistungs GmbH & Co. KG, ZF Friedrichshafen AG, Deutsche Lufthansa AG, Uniper SE, Kion Material Handling GmbH, Fresenius SE & Co. KGaA, Volkswagen Financial Services AG, Faurecia SE and Robert Bosch GmbH.
- Companies in cyclical sectors return to the market: Issuers that operate in cyclical or more vulnerable sectors – automotive, basic resources and chemicals, construction and materials, travel & leisure, non-discretionary retail and consumer products and technology –are likely to return to the SSD market, backed by a greater visibility on the general economic recovery and the upswing in increased consumer and industrial spending.
“Issuers from these more cyclical sectors, which provided only about one quarter of deal volume in 2021 (EUR 5.4bn), will likely provide extra impetus to volumes in 2022 and beyond,” says Zank.