Education and credit transparency are key for diversifying Mid-Market funding, say industry experts


London – The development of Europe’s Mid-Market sector will rely on further educating companies about opportunities in private funding, concluded a panel of experts at a recent event hosted by Standard & Poor’s (S&P). The panel included representatives from the Association of Corporate Treasurers (ACT), the Confederation of British Industry (CBI) and leading business and financial adviser Grant Thornton UK LLP.

Panelists agreed that private funding markets are showing signs of growth and that the conditions for further development are encouraging.

“Despite a return of bank liquidity, there is a lot to be gained outside of the traditionally accepted, reliable, understood banking market,” said James Ashton-Bell, Head of Financial Services Policy at the CBI. “Partnering with an institution that has a vested interest through private equity investment will likely result in a higher commitment from their side, for instance.”

But a transition to alternative funding sources presents a challenge for some. “For smaller companies used to a particular avenue of finance, it can be difficult to change tack,” according to Stephen Baseby, Technical Director from the ACT.

“For midsized companies, the European private debt market allows a business to explain complex credit stories to lenders who have time to listen and understand,” according to Shaun O’Callaghan, Head of Debt Advisory at Grant Thornton UK LLP. “Often this can be more successful for a sub-investment grade credit than raising money from the equity or debt capital markets.”

Therefore, transparency is key. “It is all about educating the market and solving complicated needs with expert solutions. We promote anything that helps to bridge the credit information gap,” said Ashton-Bell. “The focus should be on smaller companies which struggle to explain the position and risks of their business. Anything that can shine a light on that can help to develop the Mid-Market.”

Alexandra Krief, Head of Mid-Market Evaluations & Credit Estimates at S&P, explained “midsized companies must improve their credit risk transparency if they are to capitalize on Europe’s growing alternative lending market.”

S&P’s first step into the mid-market was their Mid-Market Evaluation (MME), a rating benchmark specially aimed at mid-sized companies, which offers an independent opinion of mid-sized companies’ creditworthiness. The benchmark aims to help investors better navigate the complex and relatively opaque market by providing increased transparency to widen the investor pool. Since then, S&P has published figures tracking the growth of the private debt market.

Earlier this year, S&P teamed up with Private Placement Monitor (PPM) to produce the first annual league table for private placement deals in Europe. More recently, S&P Leverage Commentary and Data (LCD) has increased its coverage of the mid-market and its developments.

For focused analysis on the profitability prospects for Europe’s Mid-Market industrial sector, and more details on the MME rating scale, please refer to the new report titled ‘Mid-Market Industry Focus: European Industrial Sector’, written by S&P’s Mark Waehrisch and Alexandra Krief.

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