Identifying market and regulatory obstacles to the development of private placement of debt in the EU : executive summary.
Date: 2020-01-31
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union
Subjects: banking policy, capital market, credit institution, debt, financial control, financial legislation, investment company, market supervision, trade information

Identifying market and 
regulatory obstacles to the 
development of private 
placement of debt in the EU 

Executive Summary  

Prepared by 

mmmll 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 European Commission Private placement of debt – Executive Summary 

Disclaimer 
The information and views set out in this study are those of the author(s) and do not 
necessarily  reflect  the  official  opinion  of  the  European  Commission.  The  European 
Commission  does  not  guarantee  the  accuracy  of  the  data  included  in  this  study. 
Neither  the  European  Commission  nor  any  person  acting  on  the  European 
Commission’s  behalf  may  be  held  responsible  for  the  use  which  may  be  made  of  the 
information contained therein.  

doi: 10.2874/108273 
ISBN: 978-92-79-66414-4 

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 European Commission Private placement of debt – Executive Summary 

Executive Summary 

Motivation and purpose of the study  

One  of  the  key  priorities  of  the  European  Commission  is  to  build  and  foster  a  stable 
and  viable  European  environment  in  order  to  ensure  the  wealth  of  its  citizens.  This 
includes promoting growth and job creation, but also responding to emerging financial 
risks.  One  of  the  key  initiatives  to  support  these  goals  is  to  build  a  single  capital 
market for all EU Member States.  

In September 2015, the European Commission launched the Action Plan of Building 
a  Capital  Markets  Union  (CMU  Action  Plan)  as  an  umbrella  for  several  steps  that 
need to be taken to deliver a unified capital market. One of the main priorities of this 
action plan is to provide more funding choices for Europe’s businesses and  especially 
small  and  medium-sized  enterprises  (subsequently  abbreviated  as  SMEs).  As  one 
measure to achieve this goal, the Commission highlights the importance of alternative 
forms of business financing, including the private placement of debt. 

To  support  the  implementation  of  the  CMU  Action  Plan,  the  Commission  contracted 
The Boston Consulting Group (BCG) and Linklaters LLP (Linklaters) to conduct a study 
on the development of the private placement of debt in the EU. The main objectives of 
this  study  are  to  identify  best  practices  for  and  assess  potential  regulatory 
obstacles to the development of private placement markets in the EU.  

Moreover, the study assesses the growth potential of private placement markets 
in  the  EU  and  should  help  the  Commission  assess  whether  there  is  a  need  for 
modifications  to  the  capital  charges  calibration  under  Solvency  II  for  insurance 
companies  investing  in  privately  placed  debt.  Finally,  it  serves  to  increase 
awareness  of  private  placement  instruments  and  their  benefits  for  the  different 
market  participants  in  order  to  encourage  issuers,  arrangers  and  investors  to  use 
private placements when appropriate.  

Methodology and approach 

The study comprises an economic and a legal part. Both parts of the study analyse 
private  placements  from  different  stakeholders’  perspectives:  the  issuers,  arrangers 
and  investors  of  private  placements.  In  addition,  the  legal  part  also  focuses  on 
regulators  as  a  further  stakeholder  group.  In  both  parts,  the  study  integrates  both 
quantitative and qualitative sources. 

For  the  economic  part,  three  approaches  are  pursued.  First,  for  analysis  of  existing 
private  placement markets  in  the EU,  the  study  focusses  on  two  countries  where 
private  placement  as  a  funding  tool  has  been  highly  successful,  namely  (i)  the 
Schuldschein  (SSD)  market  in  Germany  and  (ii)  the  Euro-PP  market  in  France.  For 
comparison  purposes,  the  study  also  analyses  (iii)  the  US  PP  market  in  the  United 
States  as  the  most  established  market  for  private  placements.  The  study  uses 
information  from  commercial  databases,  including  Thomson  Reuters  Loan  Connector, 
Thomson  One,  Dealogic,  CMS  Bureau  Francis  Lefebvre  and  the  Private  Placement 
Monitor.  

Second,  to  assess  the  growth  potential  for  cross-border  activities  and  the 
development  of  new  domestic  markets,  information  on  relevant  companies  in  the 

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respective  national  markets  was  collected  from  Orbis,  Capital  IQ  and  Bloomberg. 
Based  on  this,  the  potential  issuer  base  was  determined  and  a  potential  growth 
scenario derived. 

Third,  qualitative  data  was  collected  to  close  gaps  in  the  databases  and  to  obtain 
insights that are beyond pure numbers. A thorough literature review covered academic 
and  press  reports  on  private  placements  as  well  as  analyst  reports  and  publications 
from  rating  agencies  and  regulators.  Furthermore,  BCG  and  Linklaters  jointly 
conducted  over  60  interviews  with  a  wide  range  of  issuers,  arrangers,  investors  and 
regulators to include their expertise of both existing and potential new markets. 

For  the  legal  part,  three  different  approaches  are  pursued.  First,  to  identify 
regulatory  best  practice  in  the  well-functioning  private  placement  markets, 
the study focuses on the legal environment for private placements in Germany, France 
and the United States.  

Second,  to  identify  regulatory  obstacles  to  the  development  of  private 
placement  markets  across  the  EU,  both  at  an  EU  level  and  at  a  national  level, 
additional interviews were conducted with regulators to understand their concerns on 
the  current  regulatory  framework.  Local  experts  were  commissioned  to  provide  an 
overview of any regulatory obstacles at an EU or national level hindering development 
of  either  a  local  national  private  placement  market  or  cross-border  transactions  with 
the more established private placement markets. 

Third,  to  identify  the  most  common  risk  mitigation  provisions  in  private 
placement documentation, a detailed analysis of the typical form of documentation 
used  for  each  of  the  established  European  private  placement  instruments  was 
undertaken. With respect to the Schuldschein market, which does not have a market 
“standard  form”,  this  entailed  analysis  of  a  substantial  amount  of  Schuldschein 
documentation and the legislation underpinning such documentation. In  regard to the 
Euro-PP  market,  this  entailed  the  analysis  of  the  standard  form  of  Euro-PP 
documentation and a large sampling of Euro-PP deal documentation in respect of the 
more bespoke provisions (e.g. financial covenants). Finally, an analysis of the LMA and 
US PP private placement documentation was carried out for comparison purposes. 

The study acknowledges that private placements are not uniform. The definition used 
in  this  study  is  based  on  the  one  provided  by  the  International  Capital  Market 
Association  (ICMA)  in  2015,  defining  private  placement  as  a  “medium  or  long-term 
debt financing transaction between a listed or unlisted company and a limited number 
of  institutional  investors,  based  on  deal-specific  documentation  negotiated  between 
the  borrower  […]  and  the  investor(s)  […]  with  the  participation  of  one  or  more  bank 
intermediaries as arranger […] usually acting in an agency capacity”.  

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Key results of the study 

Increasing relevance of private placement over  past years – two main, well-
functioning markets established in the EU 

Private  placements  have  become  a  relevant  source  of  company  funding  in  recent 
years.  In  the  EU  there  are  several  variants  of  privately  placed  debt  across  different 
Member  States,  but  the  study  identifies  the  German  Schuldschein  (SSD)  market 
and  the  French  Euro-PP  market  as  the  dominant  private  placement  markets.  For 
comparison,  the  study  also  analyses  the  US  PP  market  as  the  most  established 
private placement market. 

The  German  Schuldschein  (SSD)  market  has  grown  significantly  over  the  past  ten 
years.  Starting  at  a  total  issuance  volume  of  €1.2B  and  less  than  20  known  deals  in 
2006,  it  has  risen  to  record  levels  of  €25B  in  2016  and  about  120  known  deals.  
Forecasts  expect  similar  values  in  2017,  ranging  from  €20B  to  €25B  total  issuance 
volume.  

The  French  Euro-PP  market  is  the  second  largest  private  placement  market  in 
Europe despite only having been established in 2012. While the yearly volume of the 
Euro-PP  market  is  still  significantly  smaller  than  the  SSD  market  (total  issuance 
volume  €4.5B  in  2016),  the  number  of  deals  has  tripled  in  this  period:  23  recorded 
deals in 2012 to 68 in 2016.  

In  comparison  to  the  two  European  markets,  the  US  PP  market  is  larger  and  more 
established – in line with similar observations for the bond markets. The total issuance 
volume of private placements in 2016 was €47B and 196 deals were recorded. US PPs 
have  strong  international  exposure  with  traditionally  more  than  50%  international 
issuers  but  due  to  the  rise  of  the  Euro-PP  and  the  SSD  market,  the  number  of 
international issuers has decreased. 

Private  placements  constitute  a  building  block  of  company  funding  –  but  no 
universal remedy for every company and situation 

In general, private placements allow companies to diversify their funding. Private 
placements are a financing instrument, classed between bank financing and corporate 
bonds,  which  enables  companies  to  choose  the  most  appropriate  funding 
source in terms of maturity, minimum issuance size, rating requirements and others. 
Serving as an additional option for funding, it can reduce reliance on bank funding 
– supporting the pronounced objective of many authorities after the financial crisis in 
2008/09. 

Furthermore,  private  placements  –  specifically  the  SSD  -  have  been  observed  to  be 
rather resilient in times of economic crisis. SSD have remained a viable source of 
company funding during the financial crisis, even reaching record volumes.  

Despite these general rationales, the study reveals that the three focus markets of this 
study (Germany, France and the US) differ with respect to size and credit quality 
of  the  issuer.  The  Schuldschein  (SSD)  is  a  loan  that  is  typically issued  by  medium-
sized to large firms with revenues below €5B (73% in 2016) of which the majority has 
investment-grade  quality.  Euro-PPs  are  mostly  issued  by  small-  and  medium-sized 
firms  with  revenues  below  €1B,  which  accounted  for  around  80%  of  issuers  in  2016. 
Credit  quality  in  the  Euro-PP  market  is  perceived  to  be  more  diverse  than  the  SSD 

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 European Commission Private placement of debt – Executive Summary 

market  with  increasing  numbers  of  companies  with  crossover  and  sub-investment 
grade quality. The US PP is dominated by mostly investment-grade issuers, which are 
primarily  large  companies.  Around  45%  of  issuers  generated  revenues  of  €1–5B  in 
2016 and more than 95% had an investment-grade equivalent rating. 

Furthermore,  the  markets  also  differ  with  respect  to  the  size  of  deals.  In  general, 
private  placements  are  particularly  suitable  for  companies  seeking  to  raise  unrated 
debt in smaller denominations. In both the  US PP and SSD market, the average deal 
size in  2016  was  around  €210M,  but  deal  sizes  varied  widely,  e.g.  SSD  deals  ranged 
from  €10M  to  €1.6B.  For  the  Euro-PP,  where  issuers  include  smaller  companies 
compared  to  Germany  and  the  US,  deal  sizes  ranged  from  €4M  to  €380M  with  an 
average around €70M. 

Finally,  the  instruments  also  differ  with  respect  to  their  structure.  While  the  SSD  is 
structured in a loan format, the Euro-PP also allows for the bond format – both listed 
and unlisted. Given these observations, the study concludes that the different private 
placement instruments are not in competition with each other but are complementary 
sources  of  financial  funding  that  cater  to  the  specific  needs  and  risk  profiles  of  the 
issuers and investors.  

In  comparison  to  corporate  bonds,  documentation  for  private  placements  is,  in 
general,  simpler  and  more  flexible.  In  contrast  to  direct  bank  funding,  private 
placements are more standardised on average and can therefore simplify the process 
of  debt  financing.  In  addition,  private  placement  transactions  are  confidential  by 
nature, there are no disclosure requirements of business-sensitive information to the 
public as most transactions are unlisted.  

The main cost elements for issuing a private placement are considered to be one-time 
arranger  and  legal  fees  as  well  as  the  regular  coupon  payments.  Costs  may  vary 
depending  on  the  chosen  private  placement  format  (Euro-PP  vs.  SSD,  rated  vs. 
unrated,  etc.),  the  issuer  profile  and  the  requested  yield.  Nonetheless,  overall, 
private  placements  offer  lower  issuance  costs,  especially  compared  to  public 
markets. 

For SMEs, private placement can serve as a first step towards capital markets and 
also  to  attract  new  investor  groups.  In  contrast  to  corporate  bonds,  there  are 
generally no external ratings required. Without the formal requirement of a minimum 
issue  size,  SMEs  can  issue  smaller  volumes  compared  to  corporate  bond  issuances. 
Larger companies primarily use private placements to diversify their funding. 

Accounting  treatment  and  promising  yields  qualify  private  placements  as  an 
attractive investment opportunity 

In general, there are two types of investors in private placement markets, with banks 
on  the  one  hand  and  institutional  investors  such  as  insurances,  pension  funds  and 
asset managers on the other. As for the issuers, the three markets on which this study 
focusses  also  show  different  investor  landscapes:  In  the  German  SSD  market  there 
are  around  800–1,000  active  investors,  the  majority  of  which  are  bank  investors  – 
providing around 90% of the investment volume. The Euro-PP market is dominated by 
around 30–60 institutional investors, mainly insurers and asset managers, which also 
holds true for the US PP market with 50–70 active investors.  

For all investors, private placements provide a possibility to diversify their assets to 
unrated, private firms while offering attractive yields. In addition, most investors are 

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 European Commission Private placement of debt – Executive Summary 

investing into private placements until maturity and thus can use accrual accounting 
basis, i.e., there is no mark-to-market valuation limiting volatility.  

Private  placements  –  specifically  US  PPs  and  Euro-PPs  –  usually  offer  longer 
maturities  that  match  institutional  investors’  long-term  liabilities  as  well  as  their 
investment  strategy  to  hold  until  maturity.  Also  for  institutional  investors  of  US  PPs 
and  Euro-PPs,  financial  covenant  protection  makes  private  placements  an 
attractive investment opportunity. 

The  high  number  of  bank  investors  are  a  special  characteristic  of  the  German  SSD 
market.  SSDs  that  fulfil  certain  criteria  can  be  pledged  as  ECB  collateral.  German 
Sparkassen  and  Volksbanken,  in  particular,  value  private  placements  as  a  vehicle  to 
diversification,  creating  new 
their  usual 
geographic regions and industries.  

investment  opportunities  outside 

Although  private  placements  impose  liquidity  risk  for  the  investor  on  the  basis  that 
there  is  no  properly  established  secondary  market  for  private  placements,  almost  all 
private  placement  investors  follow  a  buy-and-hold  strategy  and  therefore  accept  this 
risk to obtain an illiquidity premium and generate an additional yield.  

Additionally,  there  are  two  main  challenges  for  investors  that  distinguish  investing in 
private  placements  from  more  liquid  products  such  as  bonds:  in-house  credit 
analysis  and  monitoring  financial  performance  after  the  deal  is  closed.  With 
regards  to  the  former,  it  requires  a  significant  amount  of  time  and  resources  to 
perform a credit analysis given only few issuers have public ratings. For the latter, as 
there  is  no  secondary  market,  there  is  need  for  on-going  monitoring  of  the  issuers’ 
(financial) performance to potentially exercise any investor rights.  

Risk-profile of private placement instruments not substantially different from 
senior  unsecured  debt  –  comparable  legal  risks  affect  European  private 
placements and corporate bonds  

The  study  reveals  that  for  the  private  placement  markets  in  focus,  there  have  been 
very  few  cases  of  default  so  far.  Two  driving  factors  can  be  linked  to  this 
observation:  First,  both  European  markets  as  they  exist  today,  especially  the  French 
Euro-PP  market,  are  relatively  young  and  still  have  to  prove  their  long-term  stability 
through an entire credit and economic cycle. Second, the high credit quality of issuer’s 
in the US PP and German SSD market implies a low level of credit risk. 

A specific drawback of private placements compared to bonds can be the comparably 
complex  restructuring  process,  in  particular  when  a  large  number  of  investors  is 
involved. This applies particularly to SSD which, as a loan construct,  has no majority 
voting  clauses  or  similar  rules.  For  the  Euro-PP  there  are  typically  fewer  investors, 
which  simplifies  communication  and  negotiation  and  also  enhances  the  investors’ 
sense of commitment. Furthermore, the introduction of the Sapin 2 law increased the 
freedom as to the organisation of bondholders’ representation.  

In general, the legal risks in European private placements are comparable  to those in 
European corporate bonds. The typical legal risks affecting issuers of, or investors in, 
private placement instruments, namely the potential complexity of the documentation, 
the  management  of  covenants,  conflicts  of  laws  issues  in  cross-border  transactions 
and disclosure obligations in listed private placement transaction, are common also to 
the European corporate bond market. 

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 European Commission Private placement of debt – Executive Summary 

No  significant  regulatory  obstacles  identified  to  the  development  of  private 
placement markets – some minor obstacles  

Market participants have indicated that they do not currently see significant regulatory 
obstacles  to  the  continued  development  of  the  SSD  and  Euro  PP  private  placement 
markets  requiring immediate attention. Indeed, the development of the Schuldschein 
and  Euro-PP  markets  has  been  characterised  by  the  identification  of  potential 
obstacles and the subsequent addressing of such obstacles by refining the market 
standard  documentation  or  amendment  to  the  applicable  legal  and  regulatory 
framework.  Similarly,  in  the  other  European  jurisdictions  with  potential  to  grow  a 
national  private  placement  market,  market  participants  do  not  see  any 
significant  regulatory  obstacles  specific  to  the  development  of  such  private 
placement markets. Rather, in each of these markets, the potential obstacles that are 
typically identified are those which also affect the bond markets as a whole, although 
such  obstacles  can  comprise  a  bigger  challenge  for  the  small  and  medium-sized 
enterprises  looking  to  tap  such  markets.  This  is  primarily  the  result  of  such  private 
placement markets operating within the same regulatory framework as other forms of 
debt financing. 

Existing domestic private placement markets expected to grow further 

For  the  German  SSD  market,  given  the  recent  strong  growth,  most  market 
participants  expect  the  market  to  further  grow,  but  at  a  slower  pace.  This  study  has 
identified  three  drivers  that  may  enable  the  market  to  grow  further:  First, 
international investors also from outside the EU, in particular from the Asia-Pacific 
region,  could  increase  and  widen  the  investor  base  in  the  future.  In  the  first  half  of 
2017,  multi-currency  deals  already  amounted  to  20%  of  all  transactions.  Second, 
institutional  investors  have  substantial liquidity  and  seem  to  have  appetite  for  the 
risk-return  profile  of  the  Schuldschein  market  in  general.  This  potential  needs  to  be 
tapped  further  by  issuers  and  arrangers  to  further  grow  the  investor  base.  Third, 
market  participants  expect  that  a  change  in  the  ECB  bond  purchase  program 
might influence the SSD market, especially for large issuers that issue both bonds and 
SSDs. A reduction in the bond purchase program might render SSDs more competitive 
for those issuers. 

Most market participants expect the French Euro-PP market to grow substantially in 
the  future  for  two  reasons.  First,  there  are  still  many  companies  in  France  that  fall 
under the estimated potential of the Banque de France that have not yet issued a 
Euro-PP. Second, increased awareness of Euro-PP’s use and its benefits will attract 
more issuers and investors, both nationally and internationally. 

Some  EU  Member  States  with  potential  and  first  steps  to  establish  new 
domestic private placement market – best practices to support prospering of 
markets derived 

Private  placement  markets  are  generally  supply  driven:  only  if  there  are  enough 
attractive  potential  issuers  can  a  real  domestic  market  develop.  The  study  identifies 
potential  issuers  of  private  placements  as  medium-sized  companies  with  revenues 
between €75M to €5B. The study also finds that a relatively low number of investors is 
already sufficient to establish a market. 

An  additional  criterion  to  assess  possible  development  paths  for  a  country  is  the 
willingness of the banking sector to provide additional loans. Countries in which banks 

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 European Commission Private placement of debt – Executive Summary 

are  looking  to  reduce  loan  books  may  create  demand  for  additional  funding  sources 
such  as  private  placements.  Several  further  aspects  were  considered,  including,  for 
example,  the  relevance  of  the  local  currency.  Whenever  a  currency  hedge  would  be 
expensive, a local PP instrument might be economically feasible, but conflicting views 
from market experts did not allow for a clear-cut conclusion. 

The  study  identifies  three  countries  that  exhibit  a  large  number  of  potential  issuers 
and have already undertaken first  steps to create a new domestic market for private 
placements: Spain, Italy and the Netherlands. These countries are therefore classified 
as  having  the  highest  short-term  potential  to  build  a  new  domestic  market  for 
private  placements.  While  Spain  and  Italy  have  already  undertaken  first  steps  and 
introduced  mini-bond products, they are not yet fully established. The Netherlands  is 
working  on  a  home-market  initiative  trying  to  establish  a  pan-European  private 
placement market similar to the Euro-PP. 

Based  on  analysis  of  the  existing  markets,  best  practices  for  market  design  and 
regulation were derived to help new markets flourish. 

  First,  as  executed  for  the  Euro-PP  market,  a  collaborative  market  design 
effort of all market participants and relevant public institutions ensures sizeable 
demand  and  supply  when  creating  a  new  market.  It  also  leads  to  a  shared 
understanding  of  the  instrument  and  its  use,  and  defines  commonly  agreed 
upon market standards. 

  Second, standardised private placement documentation reduces issuance 
price  and  complexity  and  therefore  caters  to  the  needs  of  SMEs.  Such 
documentation should be complemented by instrument-specific guides and best 
practice manuals to further facilitate a smooth issuance process.  

  Third, to create an active market, it is essential to adjust regulation to facilitate 
the engagement of institutional investors in the private placement market. 
Countries  can  take  regulatory  measures,  including  modifications  to  corporate 
laws,  to  further  facilitate  the  growth  of  the  market  by  removing  restrictive 
provisions.  For  example,  several  countries,  such  as  Italy  and  the  UK,  have 
introduced  withholding  tax  exemptions  for  private  placements  and  the 
French  treasury  has  been  reforming  the  regulation  of  bondholder 
representation  (représentation  de  la  masse)  to  enable  a  more  flexible  and 
efficient  way  of  (re)negotiating  between  investors  and  issuers  in  Euro  PP 
transactions. 

A  further  supportive  element  for  a  successful  market  may  be  a  centralised  credit 
assessment  by  a  public  authority,  which  fosters  a  safe  market  environment  and 
incentivises investors.  

To  establish  trust  and  long-standing  relationships  between  market  participants, 
particularly  issuers  and  arrangers,  a  common  understanding  of  the  individual  credit 
quality and a strong market discipline is necessary. It is the investors’ responsibility to 
perform a diligent credit analysis before investing and banks’ responsibility to educate 
companies  about  appropriate  funding  instruments  and  careful  selection  of  investors. 
Having  experienced  banks  involved  as  an  arranger  of  a  private  placements 
significantly  facilitates  this  process  and  ensures  quality.  Ultimately,  the  adherence  to 
certain – even unwritten – quality standards will foster the sustainable development of 
new private placement markets. 

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 European Commission Private placement of debt – Executive Summary 

No  significant  regulatory  obstacles  to  expansion  of  cross-border  activities 
identified – supply-side characteristics and needs determine growth potential 

Besides  the  growth  of  domestic  markets,  the  study  also  identifies  significant 
potential  for  cross-border  activities  in  the  EU.  In  France  in  2016,  30%  of  the 
market  volume  was  already  attributed  to  international  issuers  while  in  Germany,  the 
share of international issuers rose to 40% in 2016. 

In  general,  companies  from  all  EU  Member  States  can  issue  private  placement 
instruments  in  the  existing  markets.  Yet,  given  the  experience  from  previous 
placements  on  the  two  existing  markets,  the  study  characterises  companies  with  a 
€75M–€5B revenue and a strong credit rating as potential issuers. For companies that 
satisfy these criteria, SSDs or Euro-PPs may serve as an attractive source of company 
funding  to  match  its  strategic  goals.  As  the  market  is  mainly  supply  driven,  with 
demand for private placements having historically exceeded supply, there is significant 
potential  for  increased  cross-border  issuances.  Furthermore,  both  banks  and 
institutional  investors  are  open  to  cross-border  issuances  and  show  a  willingness  to 
invest in foreign issuers. 

Given  the  heterogeneous  economies  and  corporate  landscape  across  the  EU,  the 
potential  for  private  placements  differs  across  the  member  states.  In  particular,  the 
disparity  between  old  and  new  member  states  with  respect  to  the  corporate 
landscapes  translates  directly  to  the  assessment  of  growth  potential  for  private 
placements.  Based  on  the  number  of  potential  issuers  across  the  EU,  the  study 
expects  substantial  potential  for  cross-border  activities  for  those  countries  with  at 
least 1,000 potential issuers. This criterion is currently satisfied for Italy, Spain, the 
Netherlands,  Belgium,  Austria,  Denmark,  Ireland,  Sweden,  Poland  and  the 
United-Kingdom. 

Most  importantly,  no  significant  regulatory  obstacles  have  been  identified  that 
would hinder the expansion of cross-border activities. Notwithstanding certain, mostly 
minor,  regulatory  concerns  at  a  national  level,  there  are  no  substantial  regulatory 
issues  affecting  these  markets  requiring  immediate  attention.  Rather,  any  concerns 
relate more to reconciling the different national legal and regulatory systems as they 
apply  to  such  instruments,  for  example  the  withholding  tax  treatment  of  payments 
under such instruments. 

Overall,  market  participants  are  generally  content  with  the  regulatory 
environment  applicable  to  private  placement  markets.  Both  investors  and  current 
issuers  have  indicated  that,  to  the  extent  possible,  they  would  like  to  limit  further 
regulatory changes affecting these markets.  

Four areas of innovation in private placement markets  

In  addition  to  general  policy  innovations,  the  study  identifies  four  areas  of 
innovation  in  the  private  placement  market  that  can  contribute  to  the 
development  of  private  placements  in  the  EU.  In  general,  there  have  been  many 
innovations  in  the  financial  industry  in  recent  years  –  driven  by  new  technologies, 
processes  and  business  models.  The  combination  of  big  data  analytics  and  new 
distribution  channels  allowed  technology  start-ups  to  challenge  traditional  bank 
business models. Similar trends can be seen in the private placement markets. 

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 European Commission Private placement of debt – Executive Summary 

First,  the  market  has  seen  several  online  platforms  for  private  placement 
transactions.  Different  platforms  follow  different  business  model  strategies  and  it  is 
unclear  which  will  succeed  and  which  not,  but  they  are  all  likely  to  increase 
transparency  in  the  market  and  constitute  strong  competition  for  established 
arrangers. These platforms also facilitate the establishment of a secondary market for 
private placements. 

Second, to meet investors’ needs and expectations and to further expand the investor 
base,  two  product  innovations  have  been  introduced:  Private  placement  funds 
have been launched by several banks to facilitate the entry to the market and further 
increase  the  investor  base.  Additionally,  so  called  green  private  placements  have 
been  issued  on  the  SSD  and  Euro-PP  market  that  adhere  to  sustainability  standards 
certified by a third party. 

Third,  the  study  identifies  two  relevant  process  innovations:  (i)  standardised 
documentation  has  been  published  to  facilitate  the  entrance  of  new  market 
participants by increasing trust and  streamlining the issuance process, and (ii) rating 
agencies  have  started  to  offer  private  placement  ratings  to  support  institutional 
investors that lack their own credit assessment teams. 

Fourth,  the  study  introduces  two  policy  innovations:  (i)  Private  placement 
withholding  tax  exemptions  i.e.  for  qualified  investors  from  states  with  double 
taxation  treaties  and  (ii)  Reform  of  bondholder’s  representation  regime  that  is 
currently  modernised  in  France  under  Sapin  II  and  allows  issuers  and  investors  to 
contractually  negotiate  and  organise  the  representation  of  bondholders  if  the  bonds 
have a denomination of more than €100,000.  

Conclusion and implications 

From  an  economic  perspective,  private  placement  of  debt  has  considerable  potential 
as  it  complements  traditional  funding  instruments  and  offers  specific  advantages  to 
the  different  stakeholders,  namely  issuers,  investors  and  arrangers.  Most  notably, 
private placements allow medium-sized firms to access new funding opportunities and 
diversify their investor portfolio, and investors to diversify their investment portfolio to 
unrated,  private  firms  while  earning  an  attractive  return.  More  generally,  private 
placements  are  just  one  more  important  pillar  of  funding  in  the  debt  portfolio  of  an 
issuer. 

In  addition,  the  growth  of  alternative  funding  and  investment  instruments  supports 
the  European  Commission’s  goal  to  reduce  reliance  on  bank  funding  and  thereby 
increase financial stability.  

This  study  demonstrates  that  the  two  existing  domestic  markets  in  the  EU,  the 
German  SSD  and  the  French  Euro-PP  market,  are  generally  well  functioning  and  are 
expected  to  grow  further.  Moreover,  no  significant  regulatory  obstacles  that  prevent 
further  growth  of  private  placements  in  the  EU  have  been  identified.  Market 
participants  and  industry  experts  do  not  see  an  immediate  need  for  regulatory  or 
legislative actions. 

Notwithstanding, the study demonstrates that legislative action at a national level can 
facilitate  the  development  of  private  placement  markets,  as  has  been  the  case  in 
France  and  Italy  for  example.  In  addition  to  the  promotion  of  best  practices  from 
existing markets, the following actions are proposed: 

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 European Commission Private placement of debt – Executive Summary 

  First,  information  campaigns  should  be launched  to  increase  the  awareness 
of  private  placements  among  potential  issuers  and  also  investors  and  support 
further market participation across the EU.  

  Second,  the  EU  should  facilitate  communication  between  institutions  of 
different  Member  States  to  ensure  the  exchange  of  experience  and  best 
practices. 

  Third,  further  promotion  of  standardisation  should  be  encouraged  by  the 
EU  and  Member  States.  In  particular,  the  use  of  standardised  documentation 
should  be  promoted  and  the  further  development  of  standardised  processes 
should be supported. 

  Fourth,  the  EU  should  consider  the  course  of  action  in  the  US  market  and 
evaluate  cost  and  benefits  from  providing  an  independent,  cost  efficient 
third-party opinion on the credit quality of private placement issuers. 

  Fifth,  the  EU  should  seek  to  clarify  the  application  of  the  EU  regulatory 
framework  to  European  private  placements  and  encourage  efforts  at  a 
national  level  to  adjust  the  application  of  the  regulatory  framework  to 
private  placements  by  further  relaxing  overly  restrictive  laws  and  creating 
private placement  specific provisions aimed at  facilitating the issuance of, and 
investment in, private placement instruments. 

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 European Commission Private placement of debt – Executive Summary 

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doi: 10.2874/108273 
ISBN: 978-92-79-66414-4 

December 2017 13