Three trends dominate the corporate debt world in food & drink industry.
Number one is the ever-rising popularity of Schuldschein in Europe. It is essentially a form of private placement. Loans are typically longer-dated than bank lending - with maturities of up to 10 years - and volumes broad (€50m-€500m). It appeals to banks and investors, which feed relatively small amounts into a larger facility alongside many other lenders. Non-bank lenders looking for returns, like insurers and funds, see it as a route into corporate debt.
In turn, food & drink businesses benefit from diversifying their pool of lenders while accessing something between a loan and a bond, with the benefits of both, but without the need for listing on the stock market, credit ratings or lengthy prospectuses. Different maturities, interest rates (fixed and floating) and currencies mean they can be tailored to specific requirements.
We expect Schuldschein’s appeal to grow despite negative headlines that Carillion and Steinhoff secured funding this way. Throwing the baby out with the bath water because of one failure would be reactionary.
The second trend is the significant liquidity on the balance sheets of major European banks. The proliferation of non-bank lenders, in Schuldschein and other markets, has broadened funding options for corporates.
Awash with cash and with interest rates low across Europe, banks have rarely been able to offer more affordable refinancing.
This is fuelling the final trend: food & drink businesses converting high-yield bonds into bank loans. This was what we helped Bakkavor to arrange last year. It, like many corporates, took advantage of the deep bank market liquidity to do some financial housekeeping of its own. Historic bonds secured on relatively high interest rates and with long-dated maturities can be swapped, helping to materially deleverage its businesses and offset against any long-term uncertainty.
Food and drink businesses find themselves with perhaps the broadest range of funding options and capital availability than at any time since the financial crisis. Carpe diem.
Jeremy Perl is MD of Debt Capital Markets at Rabobank London