Conductos flexibles

Norwegian and the Swedish high yield corporate bond market is the lack of a natural capital intensive, high yielding sector in Sweden like the oil and gas sector in Norway.

• The general experience is that the demand to invest in high yield bonds is bigger than the supply from issuing corporations. This is believed to be due to several reasons; Swedish corporations are well capitalized and are not in any general need of capital. The knowledge about the corporate bond market is low among the corporations compared to the knowledge about the stock market. There is also a matching problem on the market because of the unfamiliarity of what constitutes an accurate price, both from the corporation and the investor’s perspective.

• The high demand of investing in high yield is likely to increase further because of reallocation of capital from the stock market but also from the bond market with higher credit quality (government- and mortgage bonds). The reallocation is considered to be due to both the effects of Solvency II and a higher general risk awareness from the volatility of the stock market.

• The typical investor is a professional credit fund. Other investors are insurance companies and retail investors. They are all but entirely do- mestic investors, that is most likely because almost all issues are in SEK and too small to attract the large international investors. There are also some concerns over mispricing of bonds due to a immature and inexpe- rienced investor collective.

• The secondary market is not optimal but is starting to get better in terms of liquidity. This is also facilitated by the fact that it is more common even for high yield issues to involve several intermediaries. It has historically been a ”buy and hold” market but this is starting to change to some extent which also could open up for longer maturities. • The trustee function is considered a hygiene factor when issuing high

yield bonds but nothing that could drive a market growth on its own. It is also a good sign that the high yield market has reached a critical size to support the agent’s operations.

4.3

Agent Interviews

There are only two agents available that offer trustee services to the Swedish market, CorpNordic and Swedish Trustee. The latter is in the state of starting up its business and does not have a fully functioning organization of its own at the moment. We only interviewed CorpNordic.

4.3 Agent Interviews 4 EMPIRICAL DATA AND KEY FINDINGS

4.3.1 Interview with CorpNordic

CorpNordic is a company that, among other legal services, offers a trustee role on the Swedish corporate bond market. The trustee role is a very common function abroad, regardless of if it’s investment graded bonds or high yield bonds.

The Swedish market is considered by the respondent to be very active at the moment, ”We see that the banks, issuers and investors think it is very impor- tant with the trustee role.” The increased importance is because of two main reasons. A more developed high yield market also brings more risk into it. It is then considered important to have an objective and independent party if a default or covenant breach should occur. In that case, the presence of a trustee function makes communication between the issuer and the investors easier. The second reason is that as the market grows, the trustee function will make sure that the process and agreements will be similar which will make it easier for the investors to buy bonds.

Before the establishment of a dedicated trustee function in the Swedish mar- ket, the banks handled that role although it mostly concerned investment-grade bonds. With a growing primary and secondary market, it will be impossible and unsuitable for the banks to cover that role.

According to CorpNordic, everything points towards that agents acting as a trustee are going to be a mandatory and natural part of a bond issue. Today, it is a demand from some of the smaller investment banks that are dealing with the high yield issues but it is also believed that there is a cultural change going on within the larger banks regarding this issue. The view of the trustee func- tion has changed in Sweden during the last two years, ”two years ago we were in the process to convince the banks that they needed a trustee, we don’t need to do that today”. It is considered as only a matter of time before the investment- grade issues also involves a trustee role. The respondent is also convinced that the market will grow extensively within the coming 3 to 5 years due to the effects of the implementation of Basel III. The corporations will begin to seek alternative financing as a reaction and corporate bonds are then one possible solution.

The companies that are willing to issue high yield bonds in Sweden come from very different industries and it is often not the issuers them selves who contact CorpNordic, but law firms or the issuers bank, which are seen as the most important contacts. In order to vitalize the market for trustee services the work with a standardization of the terms is in process.