The ability to access more diverse sources of funding is increasingly relevant to establishing a robust treasury platform. Here, we briefly look at three alternative sources of finance.

Schuldschein loans

What are they?

They are private loans with typically rather limited maintenance based covenants, documented under short form loan agreements. Often tranched, with maturities (usually between three and seven years) and interest rate (floating and/or fixed) determined based on investor interest following a book building process. Individual loans are typically between EUR 20 - 500m. They are placed with take and hold investors on day one and thereafter operate like a bundle of bilateral loans (there is a payment agent but no facility agent and no majority voting). Whilst they are not capital market instruments and do not require any capital market publicity or disclosure, they are more or less freely transferable among qualified investors. 

Are Schuldschein loans relevant to me? 

They are not limited to German corporates - the Schuldschein loan market has seen a sharp increase in foreign borrowers, which made up more than one third of issuers in 2012. Savings banks, credit unions and institutional investors (pension funds and insurance companies) frequently invest in Schuldschein loans. 

European private placement

What is it? 

A Euro PP is a non-public offering of senior unsecured debt, which is sold to a limited number of (mainly) non-bank investors, such as insurers, asset managers and pension funds. It may or may not be listed, it may be rated or unrated, and may be in the form of a bond or a loan, with very few covenants - often a negative pledge and a financial covenant. 

The Euro PP market emerged in France in 2012 as a mainstream funding source for medium to intermediate size companies, who had until then looked mainly to banks, to the U.S. private placement market and to the German Schuldschein market for medium term debt. A process of standardisation and internationalisation of the Euro PP market is under way. The Association for Financial Markets in Europe (AFME), the Loan Market Association (LMA) and the International Capital Markets Association (ICMA) are working in coordination with French and UK market participants to produce best practice guides and standard form documentation by year end, with a view to facilitating the development of a pan-European market. 

Is the Euro PP market relevant to me? 

The Euro PP market is suitable for medium to intermediate size companies of credit quality equivalent to investment grade or near investment grade. Most issuers to date have been French companies, but companies based in other countries have begun to access the market.

Islamic finance

What is it? 

It is a form of financing with economics similar to conventional forms of financing, but structured in accordance with Islamic Sharia. There are a variety of structures available such as Murabaha (cost plus financing), Mudaraba (silent partnership), Musharaka (partnership), Ijara (lease), Istisna (pre-manufacturing commissioned sale) or Wakala (agency) and the type used will depend on a variety of factors including the corporate’s funding requirements, the designated use of proceeds and the asset base available to the corporate. Any Islamic finance transaction will require a religious opinion (Fatwa) as evidence that the transaction is Sharia-compliant. 

Is Islamic finance relevant to me? 

Islamic finance can be used for a variety of purposes including acquisition finance, project finance and real estate financings, as well as forming part of a corporate's regular funding base. It is also a useful tool where there is not enough liquidity in the conventional markets. There are a growing number of Islamic and conventional co-financing structures in the market. In the UK, financings such as those put in place in relation to the Shard, Chelsea Barracks, the Olympic Village and Harrods, have been financed, either in part or totally, by way of Sharia-compliant financing.