Schuldschein Boom to Ride Out Carillion Collapse, Steinhoff Woes

(Bloomberg) -- Investors in the surging Schuldschein market have been left unperturbed by recent losses at two major borrowers.

About 75 percent of the 30 Schuldschein investors in a Bloomberg News survey said they planned to increase their exposure to the German promissory notes this year, even after the collapse of U.K. builder Carillion Plc and accounting irregularities at South African retailer Steinhoff International Holdings NV.

Arrangers of the securities, which combine elements of both bonds and loans, also said they hadn’t had any requests for greater protections in the deals, which generally have short documentation and few financial safeguards.

The undimmed appetite has seen 11 deals come to market so far in January, prolonging growth that pushed volumes to a record 29.3 billion euros ($36 billion) in 2017. Investors in Europe and Asia are turning to Schuldschein, which have traditionally had few troubled issuers, partly because bond and loan yields have been crushed by low interest rates and central-bank asset purchases.

More than 80 percent of Asian investors in the survey said they want to boost their Schuldschein holdings by at least 10 percent this year. Two Chinese lenders are targeting increases of more than 30 percent. Chinese investors bought about a quarter of Steinhoff’s 755 million-euro Schuldschein, when it was issued in 2015. The notes are now quoted at a discount of about 50 percent.

Carillion, which raised a 131 million-euro Schuldschein in early 2017, filed for liquidation on Monday.

Schuldschein Boom to Ride Out Carillion Collapse, Steinhoff Woes

SURVEY FINDINGS

  • 67 percent of respondents say they will consider sub-investment-grade issuers
  • 60 percent will look at non-European assets
  • Respondents are mixed about pricing, mainly depending on the nationality of the institution
    • 33 percent can accept 50bps-70bps pricing for investment-grade issuers from German-speaking markets; German investors made up more than half this group
    • 40 percent willing to join at 70bps-90bps, while 27 percent seek more than 90bps

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