Larger companies have already been adjusting their funding mix to make greater use of non-bank sources, principally the international bond markets, but this is more difficult for mid-sized companies. In 2012 the ACT led a cross industry working group, set up as a follow on from the Breedon report – Boosting Finance Options for Business, which reported on the barriers to the development of a UK private placement market. The ACT is pleased to see that there are signs that activity in just such a market is beginning and that in France too more issues for mid-sized companies are taking place. The announcement by Standard & Poor’s that they are to offer a ‘Mid-Market Evaluation’, designed to assess the creditworthiness of mid-market companies, should, we believe, give a much needed fillip to the market potential. The ACT working group had identified the lack of credit ratings as a barrier for investors and the lack of cost-effective credit analysis offerings as a problem for issuers. The private nature of the MME assessments fits well with the working group findings too. Regulators will need to consider the interaction of Solvency II rules with the credit riskiness as identified by the new MME assessments. A crucial finding from the ACT report was that “The Solvency II complications act as a fundamental barrier for insurance company investors such that without some loosening of the regulatory burden a £PP market is unlikely to develop much volume in the near term.” The ACT welcomes the acknowledgement in the European Commission’s Green Paper – Long Term Financing of the European Economy, that financial regulations can conflict with longer term policy goals. We see further signs that the authorities in some countries may be trying to overcome the hurdles that Solvency II places around longer term infrastructure finance. This is a positive development and one we support. We are also aware of several commercial initiatives from intermediaries who can bring together mid-sized borrowers and new non-bank investors and provide efficient value added services to both sides which will, over time, open up the possibilities for private placement lending for amounts down to around £5m. For the UK market the Funding for Lending scheme is easing conditions for bank lending to companies but our hope is that when this scheme reaches the end of its life in January 2015 a new private placements market will be able to help fill the corporate funding gap.
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