The Swiss Capital Market as an Alternative for German Issuers of SME Bonds. Viktor Senn Managing Partner FlemCapital 14 November 2012

Transcription

1 The Swiss Capital Market as an Alternative for German Issuers of SME Bonds Viktor Senn Managing Partner FlemCapital

2 Agenda 1. Overview of the CHF Bond Market 2. Credit Spreads 3. SME Bonds ( Mittelstandsanleihen ) in Switzerland 4. Issue Cost 5. Case Study AEVIS Holding SA 6. Pre-requisites to attract Swiss Investors 2

3 1. Overview of the CHF Bond Market As of November 2012, approximately bond issues in CHF (domestic and foreign) were listed on SIX Swiss Exchange with an aggregate nominal amount of ca. CHF 550bn The structure of the CHF Bond market is characterized by an above average quality of issuers (high grade market) CHF Bonds Listed on SIX as of November 2012 by Rating AAA AA A BBB BB and below 23% 10% 2% 38% CHF Bonds Listed on SIX as of November 2012 by Industry Financials incl. Mortgage Banks 12.7% Sovereign, Supra, Regional Industrials Utilities 5.1% Other 7.4% 58.1% 16.7% 27% Source: SIX Swiss Exchange 3

4 1. Overview of the CHF Bond Market However, more and more issuers with credit ratings in the BBB-range and below successfully issued bonds during the last months as investors are willing to take higher risks if attractive yields are offered Furthermore, there is a trend towards unrated issues or issues/issuers rated by a non-us rating agency Historical low yields and the need to diversify away from top tier European credits are prompting investors to go further down the yield curve As a rule of thumb retail prefers tenors of < 6 years and institutional investors > 6 years Source: SIX Swiss Exchange 4

5 Agenda 1. Overview of the CHF Bond Market 2. Credit Spreads 3. SME Bonds ( Mittelstandsanleihen ) in Switzerland 4. Issue Cost 5. Case Study AEVIS Holding SA 6. Pre-requisites to attract Swiss Investors 5

6 Credit Spreads / CHF Swap Rate 2. Credit Spreads Credit Spreads of CHF Corporate Bonds (all sizes) issued in 2010, 2011 and 2012 YTD in Switzerland 6.00% 5.00% AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- Not rated CHF Swap Rate 4.00% 3.00% 2.00% 1.00% 0.00% % Remaining Term (Years) Source: SIX Swiss Exchange; Ratings: S&P, Moody's, Swiss Banks, Euler Hermes Rating GmbH 6

7 Credit Spreads / EUR Swap Rate 2. Credit Spreads Credit Spreads of EUR SME Corporate Bonds issued in 2010, 2011 and 2012 YTD in Germany 20.00% 18.00% 16.00% BBB+ to BBB- BB+ to BB- B+ to B- CCC+ to CCC- Not rated EUR Swap Rate 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Remaining Term (Years) Source: Xetra; outliers eliminated; Ratings: S&P, Creditreform, Euler Hermes Rating GmbH 7

8 2. Credit Spreads While every investment case has its own characteristics, spreads in the CHF corporate bond market (bonds with all sizes) can be relatively easily predicted based on the rating of the issuer BBB+ and BBB-: spread generally between 100 and 200bp BB+ and BB-: spread generally between 200 and 350bp Non rated bonds: can be placed if investors assess investment case as reasonably attractive The picture for Mittelstandsanleihen listed in Germany is different Credit spreads are generally substantially higher than in Switzerland Credit spreads vary much more within the rating categories than in Switzerland BBB+ and BBB-: spread generally between 300 and 700bp BB+ and BB-: spread generally between 400 and 900bp Non rated bonds: relatively common in Germany with credit spreads from 300 up to above 700bp For the German issuer, swap costs (compensation for different currency and different interest rate level) of currently less than 1% apply in order to eliminate FX risk on the CHF issue amount Also after swap costs, yield expectations are generally lower in Switzerland compared to Germany 8

9 2. Credit Spreads Corporate Bonds issued 2011 and 2012 YTD with an Amount of up to CHF 100m Issuer Symbol Coupon Rating Spread Issue Date Redemption Amount Currency Country Industry Type Hochdorf Holding AG HOC % Not rated 1.986% CHF Switzerland Food Convertible Bond Züblin Immobilien ZUB % Not rated 1.459% CHF Switzerland Real Estate Straight Bond AEVIS Holding AG AEV % BB % CHF Switzerland Healthcare Straight Bond Matterhorn Gotthard Verkehrs AG MGB % Not rated 0.189% CHF Switzerland Transport Straight Bond VINCI SA VIN % BBB % CHF France Construction Straight Bond Enel Finance ENF % BBB % CHF The Netherlands Electric Utility Straight Bond Clariant AG CLN % BBB % CHF Switzerland Chemicals Straight Bond Source: SIX Swiss Exchange; only bonds in the BBB or BB rating range or not rated 9

10 Agenda 1. Overview of the CHF Bond Market 2. Credit Spreads 3. SME Bonds ( Mittelstandsanleihen ) in Switzerland 4. Issue Cost 5. Case Study AEVIS Holding SA 6. Pre-requisites to attract Swiss Investors 10

11 3. SME Bonds ( Mittelstandsanleihen ) in Switzerland SME bonds exist in Switzerland but are still in the starting blocks Accordingly, there is no separate segment for SME bonds on the SIX Swiss Exchange However, a small number of SME bonds was issued since 2011 on SIX Swiss Exchange with the following key characteristics: Issue size: from CHF 20m (regulatory minimum) up to 100m Term: 4 to 6 years Rating: usually in the lower BBB and BB rating range (with or without explicit credit rating) Focus on non-institutional investors Family offices / HNWI Independent asset managers Retail 11

12 Agenda 1. Overview of the CHF Bond Market 2. Credit Spreads 3. SME Bonds ( Mittelstandsanleihen ) in Switzerland 4. Issue Cost 5. Case Study AEVIS Holding SA 6. Pre-requisites to attract Swiss Investors 12

13 4. Issue Cost Cost components Banking fee for lead management, underwriting ( Platzierungsgarantie ) and selling including publication of fixed income research Rating Legal costs for legal advise including drafting of required documents (i.e. prospectus and listing application) and legal opinion Comfort letter by auditor Paying agency fee Marketing and investor relations (press insertions, road show) Prospectus printing SIX Swiss Exchange commissions Cost estimates Banking fee including hard underwriting: ca. 1.5% All other costs: ca. CHF to (i.e. ca. 0.5% of issue amount) Total cost estimate for SME bonds issued and listed in Switzerland: ca. 2% Total cost estimate for SME bonds issued and listed in Germany: ca. 5%* * See Prof. Dr. A. Götz/A. Hartmann: Eigenemission von Mittelstandsanleihen Ein empirischer Kostenvergleich mit der Konsortialfinanzierung, in: Corporate Finance biz 4/2012, page 205 and K. Hartman/M. Sickinger/S. Ihlau/M. Dentz: FINANCE-Studien: Anleihen für den Mittelstand Nutzen, Umsetzung und Risiken, page 12 13

14 Agenda 1. Overview of the CHF Bond Market 2. Credit Spreads 3. SME Bonds ( Mittelstandsanleihen ) in Switzerland 4. Issue Cost 5. Case Study AEVIS Holding SA 6. Pre-requisites to attract Swiss Investors 14

15 5. Case Study AEVIS Holding SA Swiss clinic operator which merged its operational business with its properties Launch of bond Issue amount: CHF 50 70m Coupon: % Term: 4 years Rating: BB- (Euler Hermes Rating GmbH) Re-offer price: 100% Firm underwriting by lead manager at the lower issue amount (CHF 50m) and the higher coupon (4.75%) Interests between issuer and bank aligned as both parties are interested to reach a strong book (high amount with low coupon) Assurances Pari passu Negative pledge (with exemptions) Default including cross default (with exemptions) Change of control Pricing Issue amount: CHF 80m due to strong demand Coupon: 4.25% Credit spread at launch: % Credit spread at first trading day (closing %): 3.2% Current credit spread (closing %): 2.95% Total costs < 2% of total issue size (incl. firm underwriting) Timeline Ca. 5 weeks preparation 1.5 weeks marketing/road show and bookbuilding 3 weeks grey market prior to SIX listing and payment Total < 10 weeks for transaction to be closed Sole Lead Manager and Bookrunner Neue Helvetische Bank AG Source: SIX Swiss Exchange 15

16 Price and Credit Spread Volume 5. Case Study AEVIS Holding SA Development of Price, Volume and Credit Spread of AEV12 after Payment Daily Volume AEV12 Price AEV12 Credit Spread* 1'700'000 1'600'000 1'500'000 1'400'000 1'300'000 1'200'000 1'100'000 1'000' ' ' ' ' ' ' ' ' '000 0 Source: SIX Swiss Exchange; * To read the credit spreads, the left scale has to be reduced by

17 5. Case Study AEVIS Holding SA Investor Categories for the AEVIS Straight Bond 12.2% 37.5% Family Offices / HNWI 14.7% Institutional Investors (Insurance, Pension Funds) Asset Managers Retail Private Banking 16.1% 19.5% Source: Neue Helvetische Bank AG 17

18 Agenda 1. Overview of the CHF Bond Market 2. Credit Spreads 3. SME Bonds ( Mittelstandsanleihen ) in Switzerland 4. Issue Cost 5. Case Study AEVIS Holding SA 6. Pre-requisites to attract Swiss Investors 18

19 6. Pre-requisites to attract Swiss Investors Convincing bond story High likelihood and willingness to pay interests and to redeem bonds Sustainable cash flow / EBITDA compared to net debt of issuer Appropriate balance sheet: equity ratio and leverage in line with sector, limited immaterial assets and revaluations Appropriate size: in principle sales > EUR 100m, EBITDA > EUR 10m, equity > bond issue amount Accounting standard Internationally accepted accounting principles such as IFRS or US GAAP HGB (or Swiss GAAP FER) 19

20 6. Pre-requisites to attract Swiss Investors Purpose of straight bond / use of proceeds Debt diversification / reduce dependence from banks Balance sheet optimization / base financing ( Sockelfinanzierung ) Growth financing General corporate purposes No lender of last resort Bond size At least CHF 20m (regulatory minimum for SIX Swiss Exchange listing) Optional but helpful Listing of shares on a stock exchange with reasonable transparency level Swiss angle (activities/sales in Switzerland, name/brand recognition etc.) 20

21 Thank you! Viktor Senn Managing Partner FlemCapital AG Paradeplatz 4 CH-8001 Zurich Tel Mobile viktor.senn@flemcapital.ch 21