10 | ifr special report | July 2010 GERMAN CORPORATE FUNDING ROUNDTABLE
level, more investment-grade docs than high-yield docs. This is an area where the bond market can give the issuer a better deal, relative to the loan market. The number of step-ups that are out there in this stressed environment is pretty low. Investors are not necessarily asking for step- ups, for borderline credits. The demand is such that you either don’t participate or accept it as it is. The momentum at the moment is you have to accept the docs as they are. Probably maybe for certain credits we’re storing up trouble down the line but at the moment it’s plain sailing.
Thomas Kull, WestLB
German syndicated loans — industry breakdown H1 2010 3.2% 1.6% 1.0%
3.7% 3.9% 34.0% 8.3%
Consumer products and services
13.0% Total = US$27,281.0m Source: Thomson Reuters
German syndicated loans — industry breakdown 2009 2.4%1.4% 1.7%
2.6% 2.9% 19.3% Healthcare Consumer staples
Energy and power Media and entertainment
Johannes Heinloth: If I just may ask a question to Richard, because he mentioned this earlier; is the documentation for an unrated or crossover credit really that different from loan documentation?
Richard Curtis: If it was marketed as a high-yield name, you would have high- yield covenants. But if it’s a well known name that isn’t rated and it’s well perceived by the retail type investor, you can get away with investment-grade docu- mentation, which is a lot less onerous.
16.7% Other 52.5% 20.0% Total = US$76,935.5m Source: Thomson Reuters
High technology Energy and power Materials Industrials
Thomas Kull: There is more flexibility in bond documentation. Banks negotiating normal bank loan documentation look much more deeply into the credit story. I think the starting point on the bond docu- mentation is different. You are, in general, comfortable with the credit, and during the lifetime of the bond you don’t want to enter into any covenant discussions. You want to be paid back at the end and get your coupon on time.
Marc Mueller: I would disagree. On the issue of documentation, be it for rated or unrated issuers, if you want institutional investors in the book, there’s a requirement to have the standard features. In terms of unrated issuers tapping the market, those that will do well are the ones that come to market infrequently, who don’t want to go through the rating
Bettina Streiter: And we’re in an interesting cycle. I think it’s the right cycle for exactly these credits because we’re not seeing any deterioration in credit where people are being picky. Credits are strengthening so I think the environment is very fruitful for high-yield, for unrated, for crossovers. They don’t even need a rating because they can probably sell themselves as being better than they really are because everybody is feeling comfortable at the moment
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