More and more German and international companies have raised money through Schuldschein debt in recent years. A niche financial instrument halfway between a loan and a bond, Schuldscheins have been mainstream financial products in Germany and Austria for years.
At first, German financial markets were proud to see that their unassuming promissory note was garnering international attention.
But two high-profile corporate failures have prompted concern about the stability of the Schuldschein. In January, British building firm Carillion Plc went bankrupt less than a year after raising around $155 million on the Schuldschein market. A number of Taiwanese financial institutions are thought to have lost out heavily as a result.
Then Steinhoff International, the German-South African retail group, announced it was in financial trouble after fraud allegations surrounding its executives. It held €730 million ($898 million) in Schuldschein debt.
Schuldscheins are placed directly with institutional investors, who like this German form of debt because of relatively good returns and a traditionally low level of default. Companies like Schuldscheins because they are less expensive than bonds, do not need to be registered at a stock exchange, and have a relatively low level of regulatory requirements – a Schuldschein can often be issued with 20 pages of documentation, a fraction of the demands made of normal corporate bonds.