Institutional loans are attractive for European companies
Speaker
Steinbeis
Christian, tell us a little bit about Steinbeis please.
Christian Schulte
Steinbeis Corporate Finance & Investments (in German: Steinbeis BZ Mittelstandsfinanzierung & Investments) forms part of Steinbeis Foundation with headquarters in Frankfurt, Germany. We are a specialised provider of support and consulting services for companies in the field of financing and we also collaborate with other institutional lenders, such as pension funds, family offices and other foundations.
Steinbeis
Steinbeis Corporate Finance & Investments is focusing on institutional loans. How do you define institutional loans?
Christian Schulte
Institutional loans are loans from for example pension funds and foundations that are granted to companies. We are talking about funds in a range between EUR 10 - 200 million per company with a credit period ranging from 5 - 10 years in addition to the loans from the company's house banks.
Steinbeis
What are the biggest benefits for the companies when they make use of institutional loans?
Christian Schulte
Long tenors, competitive conditions, a positive signalling effect for the company's house banks and low long term interest rates.
Steinbeis
Can you tell us a little about the structure and terms of the institutional loans?
Christian Schulte
The structure is very flexible, it can be senior, mezzanine or subordinated. The terms are determined on a case-by-case basis.
Steinbeis
You personally have been working in this sector for more then 10 years. Why are so many European companies making use of loans from institutional lenders recently ?
Christian Schulte
We have been observing this growing trend since 2007/2008. Medium-sized companies have been diversifying their funding sources since then and from our perspective there are basically two main reasons why they are very active: - No. 1: Saving interest costs in the long run: Currently the low interest rates are very attractive for companies to make use of institutional loans with longer credit periods ranging from 5 - 10 years. - No. 2: Companies implement an additional financing pillar through institutional funds. This makes the company's financing structure more balanced and long term with the result being that the company becomes more flexible and stronger.
Steinbeis
Several European companies received institutional loans with the help from Steinbeis Corporate Finance & Investments. You also work in this area with companies from southern and eastern Europe and Turkey. What are your impressions?
Christian Schulte
We love to work with companies from different countries, every case and company is different. Teamwork and a transparent process are paramount in order to succeed. We sometimes have the impression that companies from southern and eastern Europe and Turkey are even more agile and innovative then their competitors from other countries. At the same time it seems that they are facing even more financial challenges due to the limited funding power of their house banks. And here we can provide a solution.
Steinbeis
How do you see the role of the house banks in this context?
Christian Schulte
The principal banks of the companies face more restrictions due to all sorts of regulations. These regulations make it generally speaking more difficult and more expensive for banks to facilitate loans to companies - especially to companies below investment grade. Usually the house banks are welcoming institutional lenders because they help to balance and decrease the credit risk from the banks' point of view. And they appreciate the fact that institutional lenders are often more flexible and long term oriented.
Steinbeis
Where do you see the biggest demand for institutional loans right now within Europe?
Christian Schulte
Especially in Italy, Portugal, Spain, Turkey, Poland and in other Eastern European countries. We see a lot of companies in these countries with pretty high growth rates, expanding their businesses through organic growth and due to acquisitions. And they need and they make use of institutional lenders in addition to their house banks to finance their investments.
Steinbeis
What do you like about your job?
Christian Schulte
I love the fact that most of the companies we work together with are very innovative and dynamic. They come from different sectors like: Automotive, Mechanical engineering, ICT, Retail, Food, Renewable energy, to name just a few industries. One of our highlights within the whole process is visiting the company's production site and the management team. This often is amazing and it gives us the chance to learn and understand so much about the company's capabilities and strengths.
Steinbeis
What kind of information do you need to start the process with a company?
Christian Schulte
The last two annual financial statements and the target figures. We have an own rating tool, which enables us to do the analytical analysis. A rating from a credit rating agency is not necessary. We pass on the results to the company, discuss them and then we define the next steps.
Steinbeis
Thank you very much for the interview.