Risky Debt

The Disastrous SME Bond

tractor KTG Agrar
Wheat harvesting with equipment owned by KTG Agra, a company that became insolvent in July.
  • Why it matters

    Why it matters

    Germany’s SME bond segment attracted companies with poor credit ratings that could no longer qualify for bank loans. Investors may have believed that their issuers were reliable and creditworthy companies, but many of these bonds are now failing.

  • Facts


    • Since 2010, investors have invested more than €6 billion in 144 bonds in Germany’s small- and medium-sized business sector, known as the Mittelstand.
    • Consulting firm Capmarcon estimates that more than 27 percent of the bond volume placed with investors is “performance-impaired.”
    • More than one in eight of the currently outstanding Mittelstand bonds is being quoted at less than 50 percent.
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It was the most spectacular insolvency among the issuers of so-called “Mittelstand” bonds this year. In early July, German agricultural group KTH Agrar was forced to file for bankruptcy after failing to make an interest payment of €17.8 million ($19.8 million) due the previous month.

The scandal has widened since then: Investors are worried about the more than €340 million they had invested in two other bonds issued by the publicly-traded company. Its subsidiary KTG Energie, which also has a bond outstanding, was not directly affected by the insolvency. Yet its head Thomas Berger was forced to resign on Tuesday.

The KTG Agrar insolvency is just one case in a wider drama playing out in Germany’s debt market for small and medium-sized companies. The once-vaunted reputation of Germany’s “Mittelstand,” the name given to small businesses here, is taking a serious hit in the process.

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