AFME-EHYA response to UK Treasury discussion paper on non-bank lending
23 February 2010
They believe that the most important measure policymakers could take to increase non-bank lending would be to remove current UCITS III restrictions on loan investment so that long-only investors, such as insurance companies, can invest in loans.
AFME (Association for Financial Markets in Europe)-EHYA (European High Yield Association) Response to HMT Discussion Paper on Non-Bank Lending
They welcomed the opportunity to comment on the HMT Discussion Paper on Non- Bank Lending and lauded HMT’s efforts to expand the sources of capital available to UK-based borrowers in a bank-constrained environment.
This submission responds to the questions posed to investors and has been prepared by a working group of the AFME / EHYA’s Investors Issues Committee and reviewed by the board of directors of AFME / EHYA.They believe that the principle measure that policymakers could take to substantially increase non-bank lending would be to remove current UCITS III restrictions on investing in loans so that long-only investors such as insurance companies, pension funds and open-ended (mutual) funds and other institutional investors can invest in loans.
AFME-EHYA believes the principal barriers to issuers obtaining public credit ratings for debt securities are:
(1) the stigma of a possible sub-investment grade rating, driven by the historical emphasis that the European equity markets place on investment grade ratings and the traditional European bond (or Eurobond) market being principally an investment grade market; and
(2) the fact that historically, UK companies have not had to obtain ratings in order to obtain debt financing. This is a legacy of the pre-Euro market, when credit markets were essentially regionally isolated. In these smaller, national markets, local reputation, as opposed to a standardized credit rating system, frequently drove credit risk perceptions.
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