Pooled funding for the Mittelstand

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Schmidt: German economic
pick-up should favour the
scheme
Commerzbank Corporates and Markets is tackling the conundrum of how to finance the Mittelstand by setting up the first Schuldschein securitization programme.

Commerzbank will pool the two- to five-year, €500,000 to €5 million funding needs of different small and middle-size German enterprises to create securitizable portfolios. It launched the origination phase on July 8, and expects the first ABS issues next year.

Schuldscheine have traditionally been used by larger corporates, but Commerzbank's platform should make them a useful tool for SMEs that need funding in sums of less than €20 million.

So far, the popularity of issues from comparable platforms, such as HVB's Preps, which pools mezzanine loans to European SMEs, suggests that Commerzbank should do well. Investors, it seems, want diversified credit exposure to Europe's economic heartland.

Nevertheless, Commerzbank is entering uncharted waters. "This is the first German senior unsecured funding platform," says Roman Schmidt, Commerzbank CM's head of corporate finance. The bank will repackage its own loans first, then think about including other banks' Schuldscheine on the platform.

Even if borrowers get a pricing advantage, some in the German market doubt that the Schuldschein market for corporates is large enough to support a new platform. "The market is growing now for cyclical reasons," says an observer at a rival bank. "But although we have written quite a few Schuldscheine to corporates, they have been nowhere near expected levels."

Most Schuldschein borrowers have been sovereign and sub-sovereigns such as the German Länder (states of the federation), and increasingly insurers trying to meet yield targets with an instrument that does not have to be marked to market.

But Schmidt is confident. "It's impossible to predict the scale of the take-up," he says, "but we have a low interest rate environment and the German economy is picking up, both of which should work in our favour."