Introduction M-Bonds for Mid-Sized Corporates in The Netherlands?

1. Introduction M-Bonds for Mid-Sized Corporatesin The Netherlands? November 2012 Rob Naber Lisette Overmars

2. Introduction • Debt Capital Market Developments III. Funding Alternatives • Mittelstand bonds • Schuldscheine • Discussion

3. I. Introduction Zanders

4. Zanders Treasury & Finance Solutions was founded in 1994 • Independently, entrepreneurial and innovative advisory firm • Specialized in Treasury Management, Risk Management and Corporate Finance • Corporates, Public Sector and Financial Institutions • Over 150 professionals • Advisory, interim, outsourcing and transactions services • Located in Bussum (NL), Brussels (BE), London (UK) and Zurich (CH) • Global leading advisory firm in its area of expertise Firm overview “Zanders believes that finance solutions should be advised in an independent, innovative and entrepreneurial manner based on thought leadership and conforming to the constantly changing demands of the market”

5. II. Debt Capital Market Developments

6. Debt capital market developments • Financing yourself in a (post) Crisis landscape? • Surety of funding is lacking • Renewed focus on credit risk due to economic downturn and increased sovereign risk • Liquidity premiums are increasing • Higher pricing and tighter borrowing covenants

7. Debt capital market developments • Implications of the Basel III banking framework • Shift of focus: from asset side to liability side • Quality and size of banks’ core capital must increase, which results in higher capital reserves • Banks must disclose leverage ratios as of 2013 • Also capital requirements for derivatives might increase, which leads to more expensive products

8. Liquidity Management Shareholders Perspective • Secure (day to day) corporate funding • Focus on sustainable balance sheet • Cash flow perspective! • Focus on solvency • Invest in flexibility • Maximizing (short term) corporate value • Ownership dilution versus subordination • Focus on ROE • Costs of principal – agent problem • Costs of financial distress Balance sheet management - corporate ‘dilemma’ Liquidity Management Shareholders’ value How to deal withdeclininglendingbybanks?

9. III. Funding alternatives

10. Debt capital market instruments

11. IV. Mittelstand bonds

12. First M-Bond issue in September 2010 in Stuttgart • M-Bonds market approx. EUR 2.8 billion – 55 Bonds • Issues range between the EUR 10 and 75 million (average EUR 50 million) • Tenor is typically 5 years • Coupon between 7-9% • Denominations of M-Bonds are typically EUR 1,000. • Listing on all 5 exchanges in Germany (Stuttgart, Frankfurt, Hamburg-Hanover, Dusseldorf) • Credit rating by 3 German certified credit rating agencies (majority between BBB+ and BB-) M-bonds

13. Mostly (>75%) privately owned companies • Annual turnover between EUR 26 million and EUR 400 million • Branches diverse, although concentration: • Energy (mainly renewable energy) - 25% • Real estate – 19% • Automotive - 14% • Interest coverage ratios are relatively low: • < 1x - 38% • 1-2x - 33% • 2-3x - 24% • > 3x - 5% M-bonds - Issuers

15. Number of issued M-bonds per Month

16. Started with mainly retail investors • Currently also institutional investors, but often for short holding period: • Saving banks • Private banks • Pension funds • Insurance companies • Online Trading Platform M- bonds - Investors

17. V. Schuldscheine

18. Schuldscheine loans are old, but recently on the rise due to declining bank lending • In 2011 the Schuldscheine loan market totaled € 8 billion in volume • Issues typically range from € 10 million until € 500 million • German corporates typically raise larger amounts than non-German companies • Flexible and can be tailor made • Typically held-to-maturity products • Bilateral agreement between a company and investor(s) Schuldscheine

19. German public authorities represent the largest group of borrowers issuing Schuldscheine • Federal republic of Germany • States • Municipalities • Banks • Medium and Large Germancorporates (BMW, Siemens, Deutsche Telekom) • Non-German companies • Typicalmidcapcorporates have revenues in between € 500 millionand € 1 billion • In 2011 about 80 Schuldscheinswith a total volume of € 8.6 billionwereissued Schuldscheine – Issuers

20. Examples of issues in 2012: • Altana AG • Altana produces and develops high-quality, innovative products in the specialty chemical business • Deal volume: € 150 million in two tranches with maturities of 4 and 6 years • Four times subscribed, transaction placed with about 100 (savings) banks and institutional investors • Allgeier Holding AG • Allgeier provides a broad portfolio of IT solutions and services • Deal volume: € 70 million, partly used to refinance bank lines • Transaction placed with 25 investors mainly (savings) banks • WackerNeuson SE • WackerNeuson is a leading global manufacturer of light and compact equipment • Deal Volume: € 120 million, more than twice oversubscribed • Transaction placed with cooperative and savings banks, as well as institutional investors within and beyond Europe Schuldscheine – Issuers

21. German and Austrian insurance companies • Regional landesbanken • Savings banks • Typically investors have a buy and hold strategy • Large network of small savings banks called ‘sparkasse’ Schuldscheine – Investors

22. FeasibilityforDucth Companies • Similarities German and NL market: • Same economic development over last 60 years • Export driven • Strong base of family-run companies (53% of GDP)1 • Direction towards non-bank funding • Investors: • Institutional investor base different (Country wide network of a very large amount of small retail savings banks (sparkasse) in Germany) • Retail investors • Supply chain investors • Less developed trading platform, but some initiatives in the Netherlands 1Research University of Nyenrode and Accountants Baker Tilly&Berk (2011)

23. Need for alternative of bank debt for Dutch companies • M-Bonds and Schuldscheine in Germany => • Solution for mid-sized companies in the Netherlands? • Discussion • Is obtaining a credit rating a pro or a con? • Who will be the investors in the Netherlands? • Can we build develop a Schuldschein or M-Bond market in The Netherlands? Wrap up and discussion

24. Mittelstand bonds • The regular bond issue will take ideally 90 days • 10 days for selecting bank, legal etc • 40 days for the memorandum and credit research • 25 days for pre-sounding / roadshows • 15 days final preparation and introduction

25. Mittelstand bonds • E.g. Dürr 7,25% 2010-2015 offering (150m + 75m); done by Close Brothers Seydler Bank. Dürr is a car manufaturer supplier of machinery • Started with preparations on 23-5-2010 • Pre-sounding 6-9-2010 • Memorandum ready 8-9-2010 • Offering intended 13-9 till 24-9; however sold after two hours !! • 3 times more market demand than the intended 150m • Pricing started at 104, currently around 108 • Dec-10 an additional 75m was issued at 106 • Initially 61% to institutional investors, remainder retail • Note; institutionals normally sell off again to retail after a few weeks/a month • Info from CBSB

26. Mittelstand bonds • E.g. Bastei Lübbe; 2011-2016 6,75%, 30m, rating BBB by Creditreform. Done by Close Brother Seydler Bank. BL is an issuer of books • Start at 25-7-2011 • Memorandum ready 29-9 • Roadshow/sounding 3-10/7-10 • Issuance at full 26-10 (in a difficult market at that time!) • 72% to institutionals, remainder retail • Issuance at par, current price at 106 • Note; rating by Creditreform is a small company rating and not fully comparable with S&P/Moody’s • Info from CBSB

27. Thank you for your attention Zanders BV Brinklaan 134 1404 GV Bussum The Netherlands T: +31 35 692 8989 Lisette Overmars Rob Naber l.overmars@zanders.eu r.naber@zanders.eu