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Study: Identifying Market and Regulatory Obstacles to the Development of Private Placement of Debt in the EU

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Study: Identifying Market and Regulatory Obstacles to the Development of Private Placement of Debt in the EU Identifying market and regulatory obstacles to the development of private placement of debt in the EU mmmll European Commission Private placement of debt study December 2017 2 European Commission Private placement of debt study DISCLAIMER The information and views set out in this study are those of the authors 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: 10.2874/097215 ISBN: 978-92-79-66412-0 © European Union, 2017. Reproduction is authorised provided the source is acknowledged. December 2017 3 European Commission Private placement of debt study Table of Contents Disclaimer ........................................................................................................ 3 Table of Contents .............................................................................................. 4 Table of Figures ................................................................................................. 7 Abstract ..........................................................................................................10 Background and objective ..................................................................................13 Methodology ...............................................................................................15 Economic part ..................................................................................................17 I. Stock-taking ..............................................................................................17 The German Schuldschein market ....................................................................19 Definition of a Schuldschein..........................................................................19 Characteristics of a private placement ...........................................................19 Development of the SSD market ...................................................................20 Stakeholder groups .....................................................................................25 Key lessons learned from the SSD market ......................................................36 The French Euro-PP market .............................................................................38 Definition of a Euro-PP .................................................................................38 Characteristics of private placements ............................................................38 Background of the Euro-PP market ................................................................39 Development of the Euro-PP market ..............................................................40 Stakeholder groups .....................................................................................45 Key lessons learned from the Euro-PP market .................................................51 The US PP market ..........................................................................................53 Definition of a US PP ...................................................................................53 Private placement characteristics ..................................................................53 Development of the US PP market .................................................................54 Stakeholder groups .....................................................................................56 Key lessons learned from the US PP market ...................................................62 II. Cost-benefit analysis ..................................................................................64 Private placement markets as complementary to other financing channels .........64 Advantages and disadvantages of PPs over other financing instruments .............65 General remarks on the use of private placements ..........................................72 Assessment of issuing costs of PPs compared to other financing sources ............73 Assessment of investment costs of a PP compared to other investments ............74 III. Growth potential ......................................................................................77 December 2017 4 European Commission Private placement of debt study Quantitative assessment of potential number of issuers ...................................78 Quantitative assessment of potential number of investors and investment capacity ................................................................................................................79 Qualitative assessment ................................................................................81 EU Member States with PP growth potential ...................................................82 IV. Risk analytics ...........................................................................................93 Overview of risk categories ..........................................................................93 Risk categories compared across different debt instruments .............................95 Coupon development of private placements compared to corporate bonds ....... 103 Comparative case studies........................................................................... 106 V. Mapping of innovation .............................................................................. 108 Innovation mapping approach .................................................................... 108 Overview of innovations ............................................................................. 109 Conclusion of the economic part ....................................................................... 114 Legal part ...................................................................................................... 117 Introduction ................................................................................................ 117 Objective ................................................................................................. 117 Key Issues ............................................................................................... 117 Definition of Private Placement ................................................................... 117 I. Regulatory Best Practice in the Well-Functioning Private Placement Markets..... 118 Schuldschein Market .................................................................................. 118 Euro PP Market ......................................................................................... 132 US PP Market ........................................................................................... 148 Summary - Regulatory Best Practice in the Well-Functioning Private Placement Markets ................................................................................................... 152 II. Regulatory Obstacles to the Development of Private Placement Markets Across the EU ........................................................................................................ 154 Summary - Regulatory Obstacles to the Development of Private Placement Markets Across the EU ............................................................................... 184 III. Analysis of Most Common Risk-Mitigation Clauses in Private Placement Transactions ............................................................................................... 185 Overview of Schuldschein Documentation .................................................... 185 Overview of Euro PP Documentation ............................................................ 187 Overview of LMA Private Placement Documentation ....................................... 189 Overview of US PP Documentation .............................................................. 190 Summary - Analysis of Most Common Risk-Mitigation Clauses in Private Placement Transactions ............................................................................................. 213 Conclusion of the legal part .............................................................................. 214 December 2017 5 European Commission Private placement of debt study Conclusion ..................................................................................................... 216 Appendix ....................................................................................................... 217 Data sources economic part .......................................................................... 217 General remarks on data sources ................................................................ 217 SSD market ............................................................................................. 218 Euro-PP market ........................................................................................ 218 US PP market ........................................................................................... 219 Additional information for the economic part ................................................... 220 Additional information for Section I. Stock-taking ......................................... 220 Additional information for Section III. Growth potential .................................. 245 Additional information for Section IV. Risk analytics ...................................... 248 Additional information for the legal part .........................................................
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