IGTA Journal - Summer 2020

At the initiative of the ECB, a label known as Short Term European Paper (STEP), was created, managed by the STEP Market Committee under the aegis of the ACI Financial Markets Association and the European Money Markets Institute. This initiative aims to give some unity to local markets by standardising documentation (updated every three years) and publishing aggregated market data (available on the ECB website). The STEP Market Committee secretariat examines applications for labelling, reviewing criteria related to the legal format, settlement systems and accounting standards of the issuer. The annual cost of the label is 3,000 euros. End of June 2020, the total number of STEP labelled programmes was 184, including 40 non-financial companies. The outstanding amount was €470 billion. French companies wishing as a priority to raise Euros generally use the NEU CP market alone: The programme is rather simple to set up and update, while France has a powerful asset management industry with a significant monetary component (outstanding money market funds stood at €340 billion at the end of 2019, i.e. 38% of French UCITS). Specialised managers, on the other hand, are greedy for corporate paper. "Financial issuers are more regular and better rated, but non-financial companies represent a welcome diversification for us," notes Mathilde Lacoste, head of investment grade management at Swiss Life AM France, who says she is "delighted" when she can "fit" this type of paper. "Constrained by the prudential rules enacted after the subprime crisis, banks are financing themselves less in the short term. This creates an appetite for securities issued by non- financial companies," explains Charlotte Quiniou, senior director at Fitch Ratings France. When financing needs are very large, issuers can improve the efficiency of the system by adding to their documentation, among other things, an English version, or by obtaining the Short-Term European Paper label. Those in need of foreign currency are more likely to turn to the Euro CP market, which is more international in terms of investors, some of whom being in Asia. This is the case in many European countries, but not in France, where issuers are very reluctant to do so: They prefer using the NEU CP in foreign currency (less easy than for Euro issues, but quite possible) or soliciting the US market. Air Liquide, for example, is playing both sides of the coin, NEU CP (programme ceiling of €3 billion) and US CP ($2 billion), with the latter being used either to supply the group's US subsidiaries or for Euro cash after conversion. At La Poste too, two programmes coexist, NEU CP (ceiling of €3 billion) and Euro CP (500 million). "The nature of the paper is secondary for us and we do not necessarily favour one in our requests to intermediaries", relates Henri Martinet, the head of financing and investments, who specifies that the public establishment is essentially financed in the medium and long term, with only 300 million euros outstanding at the 2019 closing. "It is important to animate its signature, whatever the amount at stake, in order to keep the attention and the reactivity of investors", he adds. "The nature of the paper, NEU CP or Euro CP, is not decisive. The choice of securities is based on other criteria," notes Mathilde Lacoste. IGTA eJournal | Summer 2020 | 13