New Issuance Corporates – Market observation per 30 June 2023 –

Many corporates pursuing private debt or waiting on the side lines

• The lack of accessible funding in the debt market has forced corporates to pursue loans from alternative sources such as the private debt and Schuldschein markets which see record levels of financing in 2022. Many corporates continued to pursue Schuldschein loans in 2023, this is evident when considering new issuances in the German market in the first half of this year. This is expected to continue in the remaining part of 2023.
• Significant issuances and an abundance of cheap debt available post COVID and prior to the start of 2022 allows many corporates the choice to avoid the recent rocky market conditions of the debt market. This however will change in time and has already resulted in bumper issuances in 2023.

ECB announcements and inflation

• The ECB raised interest rates in 2022 and early 2023 at an unprecedented rate, alongside this many news conferences and updates on inflation expectations resulted in turbulent markets and very few extended windows for pricing new issuances. In May and June the ECB continued raising interest rates but at a slower pace than early 2023.
• The ECB started reducing her Asset Purchase Program in Q2 2023, reducing demand for corporate issuances and likely increase yields.
• A reduction in energy prices and further ECB rate increases may reduce inflation levels. The clear signalling of the ECB in its pursuit of 2% inflation and a sense of normalcy in the current interest rate environment may provide a less volatile market and opportunities for new issuances.

Record start to 2023 and strong demand for sustainable debt

• European debt issuance continued after the record high for January in 2023. Strong demand from investors for instruments that focus on ESG concerns and the launch of several new ESG funds were pivotal for the recovery of European sustainable funds.
• Koninklijke FrieslandCampina NV for instance raised € 300 mln. sustainability linked loans that will be used to refinance maturing debt. The loan is linked to ESG-related performance targets based on four key performance indicators. The KPIs cover targets on reduction of Scope 1, 2 and 3 greenhouse gas emissions, packaging and healthy food. The company will receive a reduction in interest margin for every year it meets the KPIs.