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Erste Group Research
Special | Corporate Bonds | Europe
25. January 2021
Corporate Schuldscheindarlehen
Market overview and analysis for 2020 and outlook for 2021
Analyst:
Bernadett Povazsai-Römhild, CEFA Schuldschein market comeback expected in 2021
bernadett.povazsai-roemhild@erstegroup.com
The boom years are over for now. In 2020 companies placed Schuldschein-
darlehen in the amount of nearly EUR 19bn in more than 100 transactions.
That was around 30% below the level of the previous year. The share of
Austrian borrowers active in the Schuldschein primary market stood at just
3% in 2020, far below the levels of recent years.
After a strong start into the year, the outbreak of COVID-19 weighed
enormously on the usually quite brisk issuance activity in the spring months.
In view of the elevated uncertainty triggered by the pandemic, both investors
and issuers were either very hesitant or completely inactive. The
Schuldschein primary market, briefly shocked into a state of paralysis,
received an important positive signal from a EUR 2bn issue by Bosch (A),
the only jumbo placement of the year and the third-largest Schuldschein
ever issued in the corporate segment. As an alternative investors made
intermittent use of the normally rather unspectacular secondary market; an
untypical behavior, as Schuldscheindarlehen are traditionally regarded as
buy-and-hold securities.
The Schuldschein primary market recovered somewhat in the summer
months, but uncertainty continued to weigh on the confidence of market
participants. This was not only reflected in decreasing diversity (fewer
international companies, fewer non-euro-denominated tranches, fewer first-
time issuers), but also in investor preferences shifting to shorter tenors and
partly in quite severe increases in risk premiums.
Contents Many issuers fell back on the corporate bond market, which is strongly
Schuldschein market comeback expected in supported by ECB purchases, or made use of bank loans and government
2021 .............................................................. 1 aid to cover short-term liquidity requirements. Furthermore, companies
2020 market review ....................................... 2
Less diversity, more uncertainty .................... 3 drastically cut back capex, thus reducing their immediate financing needs.
Hefty increase in pricing ................................ 3
Sustainability, the only stable trend ............... 5 The trend toward more sustainability once again proved its resilience in
2021 outlook ................................................. 6 2020. Despite the corona-related turmoil, the segment held up quite well: It
accounted for Schuldschein placements in the amount of EUR 1.8bn; of this
EUR 184mn were attributable to Austrian companies. 2020 is to date the
second strongest issuance year after 2019 with respect to sustainability. It
Major Markets & Credit Research can be safely assumed that this trend will continue to strengthen in the
Gudrun Egger, CEFA (Head) future.
Corporate Bonds
Peter Kaufmann, CFA We expect a recovery in the Schuldschein market in 2021: Pricing should
Bernadett Povazsai-Römhild, CEFA ease slightly in the second half of the year at the latest in view of the likely
Elena Statelov, CIIA economic recovery. This should stimulate issuance activity again. For this
reason, as well as on account of the essentially high popularity of
Schuldscheindarlehen as a funding instrument, we expect the market to
Note: Past performance is not necessarily stage a comeback in 2021 and regard aggregate issuance volume of
indicative of future results. EUR 20-25bn as a quite realistic estimate.
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Special | Corporate Bonds | Europe
25. January 2021
2020 market review
Around 30% y/y decrease in In 20201 – according to our calculations2 – almost EUR 19bn in corporate
CSSD primary market activity Schuldscheindarlehen (CSSDs) were issued in more than 100 transactions.
That is around 30% below the level of the previous year (issuance volume
EUR 27.5bn, 150 transactions), and roughly in line with the level of 2015.
Austrian share of primary Austrian companies issued a mere EUR 574mn in the form of Schuldschein-
market operations slumps to darlehen last year – the smallest amount in nearly a decade. Thus the share
3% of Austrian primary market activity stood at just 3% in 2020, far below the
long-term average of roughly 10-12%. The placements were inter alia
attributable to Porsche Holding with EUR 200mn, as well as Energie AG
Oberösterreich (A) and EVN (A1/A) with EUR 100mn each.
Issuers fell back on the more Companies from Austria (as well as from other countries) preferred to raise
attractive bond market funds in the corporate bond market, which received additional support via
the Pandemic Emergency Purchase Program (PEPP) of the ECB. There
they placed a new record high volume totaling EUR 9.6bn. For the sake of
completeness it should be noted that almost half of this was accounted for
by OMV (A3/A), a representative of the oil & gas sector which had come
under pressure from two sides in 2020: In the beginning of the year oil
prices softened due to excess supply, and then they slumped due to the
decline in demand triggered by the corona crisis and the associated
worldwide decrease in industrial production.
Back to the level of 2015 AT issuers fell back on the bond market
Volume and number of transactions, overall market Volume and number of transactions, Austria
35 200 4 25
180
30
160 20
3
25 140
120 15
20
100 2
15
80 10
10 60
1
40 5
5
20
0 0 0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Issuance volume in EUR bn (left) Number of transactions (right) Issuance volume in EUR bn (left) Number of transactions (right)
Source: Market data provider, Erste Group Research (own calculations)
1
The reference date used to assign a placement to a specific time period is the settlement
date. Due to differences in assignments and split settlement dates for tranches of single
placements, deviations from other statistics may occur.
2
The CSSD market is not fully transparent. Transactions often take the form of private
placements rather than public offerings, i.e., they are marketed to a very limited circle of
selected investors. Volumes and transaction numbers cited here are therefore based on our
own records and calculations using data sourced from media reports, company reports and
reports by various financial data service providers. The figures cited in this report are minimum
amounts and reflect the publicly known portion of the corporate Schuldschein primary market.
Actual volumes and transactions can be larger, depending on the number of deals that were
closed in exclusively private settings.
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25. January 2021
Less diversity, more uncertainty
Share of German issuers The diversity of issuers' countries of origin, which has been increasing for
increases years, was quite low in 2020. CEE-based and non-European companies
stayed clear of the Schuldschein primary market altogether. Consequently,
the share of German issuers climbed to more than 80%; this percentage
had been steadily declining in previous years and stood only slightly above
50% in 2018 and 2019.
Transactions almost In 2020 the CSSD market lost much of its diversity in other areas as well.
exclusively denominated in With respect to currencies there were e.g. only three transactions which
euro were not conducted exclusively in euro. In previous years the share of euro-
denominated transactions gradually declined until it actually fell below the
90% mark in 2018 and 2019.
Almost no first-time issuers A similar trend was evident with respect to Schuldschein market debutantes,
anymore i.e., issuers using this funding instrument for the first time. In 2020 their
number fell by more than half compared to the average of previous years.
This is probably due to the fact that bank investors prioritized the liquidity
and financing needs of their own customers during the corona crisis. This
should change in 2021: According to a Bloomberg survey dating from
November 2020, bank investors once again want to allocate more funds to
Schuldschein placements of first-time issuers.
The elevated sense of uncertainty among market participants as a result of
the corona pandemic is probably most obviously reflected in the shift in
favor of shorter tenors as well as in higher risk premiums; we have devoted
a separate section to the latter phenomenon, see further below.
Shorter tenors preferred Regarding Schuldschein terms to maturity, five-year tranches continued to
be the most frequently placed tenors; their share amounted to around one
quarter again in 2020, in line with the average of recent years. However, the
share of ten- and seven-year tranches decreased by three and seven
percentage points respectively, compared with the averages of 2016-19. On
the other hand, the share of three-year tranches increased by five
percentage points compared with the 2016-19 average, to almost 15%.
Hefty increase in pricing
Pricing trending upward since Pricing in the corporate Schuldschein primary market reached its lower
2018 ... boundary in 2018, indirectly supported by the ECB's purchase program in
the corporate bond market, which had been underway since 2016. In 2019,
driven by the temporary discontinuation of ECB market support, the average
level of publicly known pricing ranges 3 for the most common tenors (five and
seven years) increased by around 15% y/y across all rating categories and
countries of origin.
... and rising further from 2Q Not surprisingly, in the (first) corona year 2020, an increase in issuance
2020 spreads for comparable transactions was once again in evidence: It
3
Schuldscheindarlehen are bilateral credit agreements. Thus the pricing process is not fully
transparent. The exact risk premiums are not known, or only very rarely. In most of the
transactions made public, only ranges of spreads per tenor and currency tranche are given at
the beginning of the marketing phase. Here, average values were used for the calculation.
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Special | Corporate Bonds | Europe
25. January 2021
averaged 15% y/y, but fluctuated quite noticeably over time. There was
even a decline of around 10% in the first quarter of 2020 compared to 2019
as a whole. This changed abruptly with the outbreak of the COVID-19
pandemic. From the second quarter of 2020 onward pricing gradually
climbed, with the strongest increase occurring in the third quarter (however,
this was partly due to transactions still marketed in the second quarter but
with settlement dates already in the third quarter). In the fourth quarter
borrowers paid on average 20% more for five- and seven-year tranches
than in 2019.
Naturally CSSD transactions of investment grade issuers fluctuated in a
narrower range than those of high-yield or unrated companies. This applied
also to German issuers in comparison with non-German companies.
More Schuldschein issuers It is also not surprising that in this unusual environment, the share of
with strong ratings in 2020 companies with a rating from at least one of the three largest credit rating
agencies (Moody's, Standard & Poor's, Fitch) increased from a quarter in
2019 to a third in 2020. Concurrently, the share of the investment grade
segment grew from around 20% to around 30%.
A direct comparison shows: The following examples illustrate that issuers of Schuldscheindarlehen had
Issuers paid more in 2020 to pay higher risk premiums from the second quarter of 2020 onward than
for placements conducted earlier. Even without knowing the precise
issuance spreads that were achieved (as a rule they are not published),
higher pricing levels are clearly discernible.
Higher pricing from 2Q 2020 onward illustrated by selected examples
Q Tenor, Spread range,
Issuer Country Rating Settlement Date
in 2020 in years in bps
12/2017 5-7 75-90
VNG AG DE -/-/- 1Q
02/2020 7 55-65
09/2018 5.5-10 80-130
Clariant AG CH Ba1/BBB- 2Q
05/2020 5 160-190
09/2016 7 55
Robert Bosch GmbH DE A 2Q
06/2020 7 140-160
01/2018 5-7 55-85
Wacker Chemie AG DE -/-/- 2Q
06/2020 6 160-180
02/2019 7-10 120-170
Barry Callebaut AG CH Baa3/BBB- 3Q
07/2020 6.5 160-200
07/2017 3-10 90-170
Emil Frey Holding AG CH -/-/- 3Q
07/2020 4-10 130-200
09/2019 7-10 55-80
Thüga Holding GmbH & Co KGaA DE -/-/- 3Q
07/2020 10 95-105
05/2017 5-10 65-115
Sartorius AG DE -/-/- 3Q
09/2020 5-10 110-170
10/2017 5-10 65-115
Asklepios Kliniken GmbH & Co KGaA DE -/-/- 4Q
10/2020 5-10 130-190
12/2018 5 120
Freenet AG DE -/-/- 4Q
11/2020 5 170
01/2018 3-10 50-110
Saria SE & Co KG DE -/-/- 4Q
11/2020 3-10 80-160
03/2019 5.5-7 70-90
Bernard Krone Holding SE & Co KG DE -/-/- 4Q
12/2020 5-7 90-140
Source: Bloomberg, Erste Group Research
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25. January 2021
Spreads expected to tighten in We expect pricing in the corporate Schuldschein primary market to ease
the second half of 2021 again over the next several months, in the second half of 2021 at the latest
in conjunction with the anticipated economic recovery. Investors will
probably remain cautious and selective anyway: Depending on an issuer's
credit rating, they may insist on higher issuance spreads and/or (more)
covenants and may continue to favor shorter tenors.
Sustainability, the only stable trend
The only trend defying the general downtrend in the corporate Schuldschein
market in 2020 was the trend toward more sustainability. This encompasses
green, sustainability and sustainability-linked SSDs.
What is the difference between Green Schuldscheindarlehen serve to fund projects with environmental
green, sustainability and benefits, such as the construction of a wind farm. In addition to the
sustainability-linked? environmental aspect, SSDs with sustainability character cover social and
governance issues as well. A distinction is made between sustainability
SSDs and sustainability-linked SSDs:
▪ Issuance proceeds of the former are used for environmental, social
and/or corporate governance projects, such as the construction of
affordable housing.
▪ Issuance proceeds of the latter are not earmarked for a specific
purpose. The special feature in this case is that the coupon is tied to the
issuer's sustainability assessment from ESG4 rating agencies (e.g.
MSCI, Sustainalytics, EcoVadis, ISS). If the rating (ESG score or ESG
rating) improves, the coupon payment decreases, and vice versa. The
range of the coupon rate adjustment is usually between +/- 2 to 5 basis
points, which corresponds to just a little less than 3% of the average
issuance spread for five-year tenors. As an alternative to an ESG score
or rating, sustainability can also be linked to selected KPI values from
the environmental, social and/or governance areas. However, the same
logic applies with respect to possible coupon rate adjustments.
Strong showing of green and Green CSSDs have been issued since 2016, those with sustainability
sustainability-linked CSSDs character only since 2019. To date the largest annual issuance volume for
these formats combined was reached in 2019 with EUR 3.2bn. Considering
the turmoil, the segment held up quite well last year too: In 2020 aggregate
issuance volume was EUR 1.8bn, placed in twelve tranches; of these,
EUR 1.2bn comprised sustainability-linked SSDs (2019: EUR 700mn) and
EUR 600mn comprised green SSDs (2019: EUR 2.5bn).
From Austria, EVN (A1/A) placed a EUR 100mn green CSSD in 2020 while
Lenzing placed a EUR 84mn sustainability-linked CSSD (part of a deal
totaling EUR 500mn that settled in 2020), both with terms to maturity of ten
years.
Green bonds predominate in Green securities have had a presence in the market for EUR-denominated
the bond market corporate bonds since 2012 and are already firmly established there. Their
share of the overall market is in a distinct uptrend, increasing to 7.5% in
2020 (or nearly EUR 40bn). Placements of sustainability-linked bonds have
4
ESG stands for Environmental, Social and Governance
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25. January 2021
likewise only begun in 2019. At last count their share of aggregate issuance
volume stood at 1.3%.
Schuldscheindarlehen and bonds in this format provide investors with
opportunities to take targeted sustainability priorities into account in their
investment decisions. Issuers on the other hand can devote more attention
to their projects and efforts in this area. This raises the awareness of market
participants with respect to the issue of sustainability in general and the
associated funding instruments in particular.
EU promotes trend toward This is entirely in line with the intentions of the EU: The transition to a low-
more sustainability carbon, resilient and resource-efficient economy (the goal of climate
neutrality by 2050 at the latest) is to be achieved not least through the
implementation of the Action Plan for Financing Sustainable Growth, which
inter alia includes among its overarching objectives the reorientation of
capital flows toward sustainable investments. With the EU Taxonomy and
the Green Bond Standard, the first regulatory steps toward enhanced
transparency and greater uniformity have already been taken; others are set
to follow in coming years.
Sustainability to remain an The trend toward sustainability in the Schuldschein market is definitely likely
important factor in the to strengthen further – it is here to stay. We expect issuance volumes and
Schuldschein market the number of transactions to keep growing in coming years.
2021 outlook
2021 forecast: EUR 20-25bn We expect the corporate Schuldschein primary market to be more active in
2021 than last year. The recently prevailing sense of uncertainty should
decrease along with rising corona vaccination rates and lead to an easing of
market tensions. Ten CSSD issues with a volume of at least EUR 1.5bn
have been announced or already placed in the year-to-date; these include
two Austrian companies (AT&S and Mayr Melnhof Karton), two first-time
issuers and three sustainability-linked Schuldscheindarlehen. In 2021 as a
whole, we expect primary market volume to reach EUR 20-25bn.
Diversity expected to increase Issuance proceeds may be increasingly used for strategic projects again
again (rather than solely for covering liquidity needs). We also expect to see more
international and first-time issuers again. This is because
Schuldscheindarlehen continue to provide a favorable opportunity to
diversify a company’s funding mix and investor base and furthermore
feature a number of specific advantages, such as leaner documentation,
more flexible contractual arrangements and the option of confidentiality.
Demand should definitely remain strong. In view of the persistent low
interest rate environment investors are always searching for attractively
priced offerings from issuers with strong ratings.
We are looking forward with optimism to developments in the corporate
Schuldschein market in 2021.
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