Capital market union - Unify debt markets

We complain about having fragmented private equity markets and a severely curtailed Capital market but one of the main ways to mobilize more money is through ACQUISITIONS.

However, most acquisitions are financed through debt (Leveraged buy-outs, Management buy-outs, Acquisition loans, …) and those instruments are typically only available for investment-grade corporates who can access the EU bond market.

As a founder of a B2B lending company in Europe I’ve found there are MANY internal barriers to cross-border lending that should be addressed.

I have many concrete proposals here but to understand why they are critical you need to understand how lending works.

1. Giving out money is easy

2. The hard part is getting the money back.

The main ways to lose money is

1. Fraud

2. Poor underwriting

3. Lack of collateral to reclaim in case of default

4. Lack of data to discriminate between a bad company and a good company

5. Poor ethics on the borrowers’ part (similar to fraud)

6. Non-payment of taxes (Government seizes assets that you had collateral on)

That’s why I propose to extend the EU Inc’s proposal and especially the EU registry to include all datapoints known to the government and have centralized submission through the EU registry of key data (e.g. VAT returns, which have to be filed anyway)

That way the creditor and the government have the same view. It’s important to understand that all this data is actually known by the government already and does not require more paperwork on behalf of the entrepreneur.

The asset register and the power-of-attorney register are voluntary but can be used by credit institutions to ensure they are the only lender claiming those assets. (overcollateralization is a common fraud scheme, similar to getting a home equity loan multiple times)

Data to be included (and behind a wall so it’s not publicly accessible except to credit providers)
- Director registry (company house)
→ Legal cases associated to the director
→ Disbarment status in any state
→ Legal name, Date of birth, Nationality, Appointment date, Resignation date, Legal ID number
→ Permission to self-deal (conduct contracts with himself)
- Asset registry (updated through registration of collateral; Government can add assets it knows about such as properties and cars)
→ Collateral value (self-assessed, independently assessed, creditor-assessed)
→ Lien amount (Total claimable in case of default)
→ Status: Free, Pledged, Foreclosure started, Foreclosed
- Supplier registry (through VAT report)
→ Supplier name, country and ID
- Power of attorney register (self-registered)
→ People or entities that can act on behalf of the company and in what capacity
- Loan registry (creditor can register debt and debt status)
- Annual returns (tax-filing)
- Tax payment status
- Company status (active, voluntary strike-off, mandatory strike-off, insolvent,…)

This does not require more administration from entrepreneurs, the government already has this data!

All this data is used by creditors to understand the moral character, the financial position, the level of indebtedness and if the collateral is unencumbered.

Standardized company registers would enable banks to conduct cross-border lending using a unified risk approach.

The registration of claims against collateral specifically gives a lot of certainty, it’s not uncommon to have 4 banks claim the same collateral in default scenarios.

The unification of this data across Europe in combination with unified insolvency proceedings and corporate courts will unlock debt capital across Europe as now an Estonian bank has all the data needed to borrow to an Italian company.