Mr. Petrie, what exactly is a Schuldschein?
It’s a transferable loan. Until the mid-1990s the dominant corporate financing instrument was the Anglo-American-style syndicated loan, in which several banks teamed up to provide a client with credit. It had disadvantages, however, as it was based on common law practice (rather than civil law) and used English wordings. That’s why we put together a more comprehensible set of rules based on the German Civil and Commercial Codes. We also developed standardised documentation, which was recently placed on a broad international footing by the Loan Market Association (LMA). That’s how the corporate Schuldschein was born, a financial instrument that is a lot simpler and easier to use.
And why is it so attractive for issuers, investors, and the banks arranging the deals?
The Schuldschein really has its roots in the business of municipal and bank funding. During the financial crisis, however, many investors began looking for investment opportunities outside this group of borrowers, and that ultimately proved to be a shot in the arm for the Schuldschein – for good reason. After all, it offers many advantages: highly simplified documentation, favourable accounting rules and, what is more, it is becoming ever more international – already, half of all investors in Schuldschein instruments come from abroad. It’s an appropriate investment instrument for savings banks, enabling them to diversify their often very local lending portfolios. Prior to the financial crisis, the market volume for Schuldschein instruments was 3.4 billion euros. It has since exploded, reaching 27 billion euros last year. Helaba participated in 40 of the some 160 deals transacted in 2018.
And now you have digitalised what was already a standardised product. What was your reason for doing that?
We wanted to make Schuldschein instruments simpler, more transparent and more favourable for our customers. That’s why we have replicated the entire work-intensive production and sales process on a digital platform: that includes initial discussions on timing and sizing as well as maturities, terms and conditions, bank enquiries to investors, the delivery of financial statements and ratings, and the collection of customer queries in a data room. The order book and the allocation process – i.e. the selection of maturities and prices – have also been transposed to the platform. As all of the processes run on the one platform, there are no discontinuities, which are costly and often sources of error. Information is no longer transmitted by e-mail, letter or over the phone: everything is handled digitally via the platform.
Why did you opt for the platform offered by vc trade, a fintech?
There are a number of Schuldschein platforms, most of them developed by banks for use with their own transactions. We deliberately chose not to run with one of these. We are convinced that the way forward is an independent platform that can link up all banks, issuers and investors. What is more, Helaba sees itself not only as an arranger of Schuldschein instruments, but also as an investor. We wouldn’t be able to play both these roles on another financial institution’s platform. We want a genuine marketplace.
How do you envisage the future of the digital Schuldschein?
We can already see how well it is doing. Seven arrangers and more than 300 investors are using vc trade, a platform that has seen more than 25 transactions for a total value of around 3.1 billion euros. And many things are still in flux, also as regards the technology. In the short term we will introduce digital signatures and, in the medium term, smart contracts. These are an important prerequisite for using blockchain solutions to manage transactions. We also intend to offer other financial products on the platform.
“We wanted to make Schuldschein instruments simpler, more transparent and more favourable for our customers. That’s why we have replicated the entire work-intensive production and sales process on a digital platform”
head of Corporate/Capital Markets at Helaba