The "Squeezed Middle": S&P Says Europe's Midsize Companies Need Up To 3.

5 Trillion Funding By 2018

Primary Credit Analyst: Alexandra Krief, Paris (33) 1-4420-7308; alexandra.krief@standardandpoors.com Secondary Contact: Alexandra Dimitrijevic, Paris (33) 1-4420-6663; alexandra.dimitrijevic@standardandpoors.com Media Contact: Michelle James, London +44 (0)20 7176 3274; michelle.james@standardandpoors.com

LONDON (Standard & Poor's) June 25, 2013--Midsize European companies--accounting for about one-third of the region's economy and employment--are likely to struggle to meet their multi-billion financing needs over the next few years as banks reduce their lending to the sector, according to Standard & Poor's Ratings Services. Standard & Poor's has today launched Europe's first credit benchmark aimed specifically at helping increase the transparency and comparability of midsize companies from a credit perspective, which may help facilitate access to new sources of capital market funding. The Mid-Market Evaluation scale will target midsize companies with revenues below 1.5 billion and debt below 500 million. "European businesses have traditionally relied on bank funding, but deleveraging and tightening regulation are creating a scarcity of finance for European companies, and the problem is particularly acute for midsize businesses," said Alexandra Dimitrijevic, Managing Director, Standard & Poor's. "While larger corporates have easier access to finance and much smaller companies are the focus of a variety of policy proposals, midsize businesses--or the squeezed middle--appear to be falling into the gap between them."

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The "Squeezed Middle": S&P Says Europe's Midsize Companies Need Up To 3.5 Trillion Funding By 2018

The scale of the problem facing this squeezed middle of the corporate sector is significant. Standard & Poor's estimates that European midsize businesses will need to raise up to 3.5 trillion in debt funding over the next five years. About 2.7 trillion of this relates to refinancing existing loans, with the remaining 800 billion needed to support capital investment and expansion plans between now and 2018. This equates to about one-third of total debt currently owed by nonfinancial companies in the region. Tim Ward, Chief Executive of the Quoted Companies Alliance, said: "Lack of independent information and comparability is often cited by our members and their advisors as a barrier to gaining greater access to debt finance from institutional investors. In this respect, Standard & Poor's new Mid-Market Evaluation should be extremely useful." To ease the funding pressure facing midsize companies, new mechanisms are being developed in Europe to channel funding from investment and other non-bank institutions, including the nascent but growing European private placement markets and the launch of new bond exchange platforms in countries such as France, the U.K., Italy, and Spain. Even a 5% contribution to the financing requirements of these companies from various alternative funding sources would amount to a meaningful 35 billion each year. However, despite a growing interest from institutional investors in investing in this new asset class, they are often deterred by the lack of transparency of the credit risk of midsize debt issuers. Colin Tyler, Chief Executive of the Association of Corporate Treasurers, said: "Large companies have been raising significant amounts of new funding in the international bond markets, but this has been more difficult for midsize companies where smaller issue sizes and lack of clarity on credit risk have discouraged investors. Standard & Poor's new Mid-Market Evaluation is therefore a welcome development and one which should stimulate mid-market issuance across Europe." A Mid-Market Evaluation offers an independent view of midsize companies' creditworthiness and the drivers behind this assessment. For potential investors, Standard & Poor's believes that it offers a valuable aid in supplementing their own credit analysis and providing comparability across the mid-market sector on a common, purpose-built scale. For mid-market companies, it may help to widen the investor pool, help competitive borrowing, and streamline the funding process by increasing transparency and providing a common benchmark on creditworthiness. For further details see: "Mid-Market Evaluation: Definition And Scale," and "Credit FAQ: Standard & Poor's Mid-Market Evaluations Explained," both published on June 24, 2013, on RatingsDirect. NOTES TO EDITORS: A Mid-Market Evaluation is an independent opinion about the creditworthiness of a mid-market nonfinancial company relative to other nonfinancial mid-market companies. It assesses a relative likelihood of a mid-market company's

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The "Squeezed Middle": S&P Says Europe's Midsize Companies Need Up To 3.5 Trillion Funding By 2018

capacity and willingness to meet its financial obligations as they come due. It is represented on a scale from 'MM1' (highest) to 'MM8' (lowest), and 'MMD' (default). A Mid-Market Evaluation is applicable to nonfinancial companies with revenues below 1.5 billion and debt below 500 million. Each Mid-Market Evaluation is accompanied by a report presenting Standard & Poor's view on the main credit strengths and weaknesses of the company. Unlike credit ratings, the results of a Mid-Market Evaluation are not distributed publicly. Instead, they are made available to a limited number of lenders, investors, or other third parties chosen by the mid-market company. The product is based on Standard & Poor's corporate credit rating methodology; however, the analytical process is simplified and adjusted for mid-market companies, taking into account their unique characteristics in terms of business risks, management and governance, and liquidity. It is not applicable to financial firms, utilities, leveraged buyouts, project finance, subsidiaries or holding companies of a rated entity, or to mid-market companies that issue publicly traded bonds. A Mid-Market Evaluation is not a credit rating and is not a substitute for a credit rating.

The reports are available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a RatingsDirect subscriber, you may purchase copies of these reports by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4009.

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