Bank financing at favorable rates remains a viable choice for Austria's midsized companies.
But with Basel II looming, diversification of funding sources is a reality these corporates must face.
Accessing the corporate bond market on a small transaction basis is expensive, but these companies can now acquire a foothold via a program established by Austrian corporate banking specialist Investkredit Bank AG.
The bank has designed a corporate bond program aimed at companies that turn over more than 50 million ($59 million) and up to 200 million ($237 million) annually, clearly on the larger end of midsized corporates. These companies have traditionally had no access to the corporate bond market that typically requires issuance size per deal to be more than 100 million ($118 million). Under the Investkredit program, these companies would be able to issue deals as small as 5 million ($5.9 million). Investkredit structures a series of the small bond issues and places them within its own balance sheet, with the aim of amassing 300 million ($355 million).
"What we are doing is reducing the amount of issuance to a minimum of 5 million," said Walter Riess at Investkredit. "Investkredit keeps these ... bonds in a basket. When it reaches 300 million, the bank plans to issue credit-linked notes that will be placed with institutional investors."
Once the basket reaches its limit, it will be tied to between 20 and 30 corporate names with different risk profiles. Riess said Investkredit plans to issue four tranches of credit-linked notes. The first tranche will be rated triple-A and placed with institutional investors. Investkredit will retain half of the first-loss piece - the fourth tranche in the transaction - and the remaining 50% will be placed with Austria Wirtschaftsservice GmbH, a public body that administers grant awards to Austrian companies.
AWS is essentially committing to underwriting 10% of the total bond portfolio. Its role, despite the fact that it's a government-supported entity, is not considered state aid, said the European Commission. The Commission said AWS' participation is on market terms and is based on conditions a private investor would have accepted.
"The concept of the Austrian bond portfolio as developed by Investkredit breaks new ground for corporate financing in Austria and aims at modernizing the Austrian capital market," the Commission said.
Riess said the bank has 200 million in its portfolio for the bond program. The debut of its credit-linked notes is set for the third or fourth quarter.
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