European Bondholders “Out” Secretive Firms In Battle Over Greater Disclosure

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It might be hard to believe, but transparency is increasingly becoming the norm in the financial industry. Even sectors such as private equity and hedge funds, where secrecy has been the norm for decades, are starting to open up their books for investors. In other sectors of the financial industry, the move towards transparency is bringing light to dark corners of sectors such as junk bonds where tight control of information has long been the policy.

European bond buyers push for greater disclosure from junk bond issuers

According to an October 20th article in the Bloomberg Business, bond investors are campaigning for private companies to make their financial information available in a move towards transparency in the growing high-yield bond market in Europe.

Apparently the Association for Financial Markets in Europe distributed a list of the most secretive private firms to bond arrangers to try and create a debate about corporate disclosure, noted Gary Simmons, the director of AFME’s high-yield unit. The letter “outs” over 75 private borrowers that are “too protective” of their financial data, with the eventual goal of leading to standardized reporting, according to the Bloomberg sources.

The sources note that the private firms control access to their financial information and earnings by using password protection, which requires registration, or in some cases only e-mailing their data to a few stakeholders.

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Junk bond industry analysts highlight that demand for improved disclosure is growing as firms raise more money in the junk bond market. European issuance of high-yield bonds skyrocketed to a new record of 72 billion euros in 2014.

“Investors are beholden to the individual policies of companies in terms of how much visibility and access they provide,” commented Mark Chapman, a senior analyst at CreditSights Inc. “I understand why some companies aren’t used to transparency being their top priority, but it’s in their interest.”

Keep in mind that issuance moved up by 31% in 2014 and has already topped 50 billion euros this year as firms transition from bank financing after a notable drop in bond borrowing costs. Of note, bond sales often involve keeping hundreds of stakeholders up to date with financial data, compared to just a few lenders with bank loans.

“They’re used to having relationship banks where a small number of people are involved, and they can control the flow of information to a small group,” Chapman explained.