Euro Private Placement (Euro PP)
Introduction to Euro PP
European private placements are based on deal-specific documentation negotiated between the borrower and the investors, generally with the participation of an arranger.They can take the form of bonds or a loan (secured or unsecured), which are illiquid and essentially reserved to buy-and-hold institutional investors, although the bonds can be listed if required to satisfy investors’ criteria.
European private placements generally rank pari passu with the company’s existing bank debt.
The Euro PP market emerged in France in 2012 to provide access to the bond market to unrated mid-cap borrowers with limited financing needs, in a context where more and more mid-sized companies sought to diversify their funding sources to recover from the credit crunch. It has grown significantly since its apparition, from being virtually non-existent prior to 2012 to becoming an important additional financing tool for companies today. There have been more and more Euro PP transactions of smaller size over the past four years, which reflects a progressive opening of the Euro PP market towards smaller size borrowers. Over the years, volumes of the individual transactions have tended to vary between EUR 5m and 250m, with average maturities of between 5 and 7 years, although transactions of bigger sizes and longer maturities have been entered into.
Euro PP transactions have also expanded to various sectors (including the food industry, distribution, real estate, construction, transport, human resources, energy, technology, media and communication) and diversified over recent years, also for corporates of various jurisdictions.
The development of European private placements has been facilitated by the publication of the following market standards:
- the “Euro PP Charter for private placements”, which was published in March 2014 to enhance the development of private placements in France and provides a non-binding framework of best practice and recommendations elaborated by a market group consisting of ten market professional associations with the support of public sector institutions including Banque de France, the French Treasury and the Paris Chamber of Commerce and Industry and three law firms, including CMS.
- the Euro PP templates, comprising a form of loan agreement for private placements in the form of a loan and a form of subscription agreement and terms and conditions for private placements in the form of bonds, which were drafted by three law firms including CMS to follow on the Euro PP Charter in January 2015. The initial templates are governed by French law. These are available, free of charge, in English, French and Italian on www.euro-privateplacement.com.
- the LMA PEPP template documentation, which was published in January 2015 by the Loan Market Association (the “LMA”) and has been implemented in order to remove some of the barriers to the development of a unified European Private Placement market across Europe and to sustain the momentum behind the growing private placement market. This documentation is based on the LMA standard form investment grade syndicated loan agreement, a financing document familiar to borrowers and lenders across industries and jurisdictions. The initial templates are governed by English law.
As template documents, these standards are designed to be adapted to reflect negotiations between the borrower and the investors based on the profile of the borrower, characteristics of the transaction and market conditions
Besides the advantages described in general at the beginning of this paper, the following additional points could be added:
- European private placements can be amended by a defined majority of the bondholders (contrary to SSDs and, unless provided otherwise, USPPs, which amendments are only binding investors who have agreed to such amendments), which is particularly important for borrowers if the terms of the private placement include covenants that might need to be waived during the life of the transaction;
- Financing volumes: European private placements can be raised for smaller amounts than most other private placements (there have been some private placements for EUR 5m or 10m) and also for large transactions (over EUR 500m);
- Listing: European private placements in the form of a bond issue may be listed on a market if it is a requirement for an investor.
- Flexibility in structuring the interest (fixed or floating)
- Secured transactions