On average bond issuance by unrated companies has accounted for a tenth of overall European corporate bonds over the past three years, with much of the volume driven by first-time issuers, typically small and medium-sized enterprises.
Bond issuance by unrated companies has doubled since 2010, totalling to about 108 billion driven by yield-hungry investors, low interest rates and a dearth of bank finance, the Financial Times reported quoting a Fitch report.
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"Yields have been very attractive to borrowers and banks were cutting back to SMEs in particular in some respects they were driven to it," Tom Chruszcz, a director at Fitch, was quoted as saying by the Financial Times.
The research found that more than half of unrated issuance consisted of bonds under 100 million, a relatively small size compared to rated companies, while the average bond is 157 million.
Chruszcz said that unrated issuance has been heavily biased towards those domiciled in the France and Germany and perceived safe havens such as Norway, Switzerland and the UK.
"Most asset managers are limited by their mandates in how much unrated bonds they can take on, so you’re left with retail investors who make up a much smaller portion of the overall investors’ pool," Chruszcz added.
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