EC published report on a study on identifying market and regulatory obstacles to the development of private placement of debt in the EU. The study shows that private placement of debt instruments with institutional investors could play a greater role in financing medium-size companies in the future. The study also highlights a considerable growth potential for private placements in the EU due to new domestic markets and increased cross-border activities.
The paper comprises two parts: an economic part and a legal part. The economic part contains five sections involving stock-taking of existing and well-functioning private placement markets, cost-benefit analysis of private placements vs. other financing instruments, assessment of growth potential of private placement markets in Europe, risk analytics of private placements, and mapping of innovation in the private placement sector. The legal part contains three sections that cover analysis of regulatory best practice in well-functioning private placement markets, identification and analysis of regulatory obstacles to the development of private placement markets across the EU, and analysis of most common risk-mitigation clauses in private placement transactions.
In line with the Capital Markets Union Action Plan, the study identifies best practices in the well-functioning EU markets of private placements (mainly the German Schuldschein and the French EuroPP) as well as potential barriers to their development. The study shows that private placements allow investors to diversify their investment portfolio to unrated, private firms while earning an attractive return. Moreover, the risk profile of private placement instruments is not substantially different from senior unsecured debt. No major regulatory barriers preventing further growth of private placements in the EU have been identified as requiring immediate attention. However, some steps could be taken at the European and national levels to foster the development of private placement markets.
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