Mini-bonds as debt instruments for small and medium-sized enterprises: regulation, market analysis and issuance strategies

Based on the recent regulation concerning the so called “mini-bonds†introduced by virtue of the Decree “Sviluppo†2012 and the Decree “Destinazione Italia†2013, the article outlines the process of structuring, underwriting, placing and quoting an issuance of such new debt instruments for non-listed small and medium-sized enterprises (SMEs). By emphasizing their nature of “purpose†bonds for the financing of expansion and internalization projects put forward by SMEs, expected benefits associated with the complementary and/or alternative use of such instruments relative to bank debt and draw- backs (such as the scarce liquidity of the secondary market) are discussed. Furthermore, the analysis of the Italian mini-bond market potential is carried out with the selection of a sample of 3.418 SMEs on the basis of the fulfillment of five economic and financial criteria and the availability of the 2012 financial statements. The prospects for growth and attractiveness of such a market seem to be promising as, under very prudential constraints of excellent managerial adequacy, in 2014 about 100 SMEs would be capable of issuing mini-bonds worth about € 300 million (based on an average size of € 3 million per issuance), which may be doubled in the next three-year period (with a target offer equal to 2,4% of corporate bond issuances executed by large firms in 2012). The study is also enhanced by the illustration of a business case concerning the issuance of the first “real†mini-bond in the Italian market by CAAR S.r.l., a firm active in process and product engineering serving the automotive, aero- space and railway industries.