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Capital Markets

Private paper's allure wins European hearts

European corporates are making the most of burgeoning demand in the US private placement market. This raises the profile of the asset class but is hampering the development of an equivalent market in Europe and might be prompting banks to oversell issuers.

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ARE YOU A European corporate? Do you need to borrow money? Why not issue illiquid paper with a stack of bondholder-friendly provisions to an investor base thousands of miles away? In short, why not do a US private placement?

That apparently unlikely sales pitch has convinced a growing number of issuers in the past 18 months. The total US private placement market was worth just under $29 billion in 2002. Issuance in 2003 was nearly $46 billion – up 59%. And the dollar market is now primarily cross-border, driven by European issuers tapping US investors.

These issuers like to raise long-term funds at a fixed rate. Investors, chiefly US life insurance companies starved of BBB-supply from domestic borrowers, like a simple product with standardized documentation that they can match with their long-term liabilities. The paper also offers them protection in the form of financial covenants. And private deals are quicker and cheaper to execute than public deals.

"From going to the market to completing the placement, a US private deal can be done in three to four months," says Brian Bates, a partner at US law firm Morrison & Foerster.

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