EURO-MEDIUM TERM NOTES POISED FOR GROWTH
Euro-medium term notes, a recent
phenomenon in the international capital markets, are hardly
attracting a flood of issuers but investment bankers are doing
their best to breath life into the market.
    Medium term notes (MTNs) have met with staggering success
in the U.S. Market where total outstandings have grown to
around 50 billion dlrs since 1983, the year they took hold as a
new financing vehicle to bridge the gap between commercial
paper and longer term bonds. Convinced they are here to stay,
investment bankers are attempting to adapt MTNs for the
euromarket.
    Ralph Bunche, a vice president of Morgan Stanley
International, predicted at a recent Euromoney conference on
MTNs here that they will become the predominant instrument for
raising funds in the late 1980's and 1990's. "It (the MTN
market) will even surpass the bond market," he said.
    Other bankers took exception with the degree to which MTNs
will grow. But they generally agreed that these instruments
provide the borrower with greater flexibility and lower costs
than a traditional bond.
    The trick is in convincing European borrowers it is worth
arranging a program and, having accomplished that, to persaude
European investors -- whose preferences differ from their U.S.
Counterparts -- to buy the securities.
    Discussions with bankers proved one thing. No one is
exactly sure how to proceed with structuring and marketing
these issues.
    To date only 13 Euro-MTN programs have been announced but
only a few have been activated, such as those for a unit of
PepsiCo Inc and another for AB Electrolux.
    Several firms have devised different structures for
Euro-MTNs and defend their structures adamantly.
    The PepsiCo notes, for example, are sold on a continuously
offered basis. This involves a small amount of new notes with
similar maturities constantly on offer at current market rates.
    The Electrolux program uses multi-tranche tap notes devised
by Merrill Lynch. Under this structure, an initial tranche of a
minimum 50 mln dlrs has a fixed rate of interest and maturity.
The borrower then issues additional notes in this category up
to a pre-determined maximum.
    Those who defend the continuously offered method, such as
Wendy Dietze, a Salomon Brothers Inc vice president, point to
the flexibility they offer in interest rate and maturity.
    Furthermore, she believes this structure offers the
European investor greater confidence in market liquidity -- a
major concern for these buyers.
    Merrill Lynch Europe Ltd's Kevin Regan defends the
medium-tranche tap notes concept saying it offers comparable
liquidity. But he also said that this structure may not be the
right option for all borrowers.
    Peter Mortimer, a partner in the law firm Milbank, Tweed,
Hadley and McCloy, noted that legal requirements could well
determine which structure is chosen.
    He noted that the tap system allows a more clearly defined
"lock-up" period as each tranche has a specific maturity. In the
case of notes issued by U.S. Borrowers, the "lock-up" period is
the 90 days after the completion of a series during which time
a security cannot be sold back to the U.S. Or to U.S.
Investors.
    However, he said that the Securities and Exchange
Commission is reviewing its current regulations on the
ownership of foreign securities by U.S. Citizens and that some
softening in the rules could come in the not too distant
future.
    For their part borrowers say they feel a bit like guinea
pigs.
    Petter Skouen, executive vice president of the Nordic
Investment Bank (NIB), noted that a few weeks ago NIB would
have said it was disappointed with its Euro-MTN program, but
that the success of a recent issue changed their minds.
    He conceded that in retrospect it would have been wiser to
establish separate programs for the euromarket and the U.S.
Domestic market, rather than try to extend the U.S. Issue
globally. Under NIB's 200 mln dlr program, 100 mln has been
sold in the U.S. And 25 mln in Europe.
 REUTER
