How Quirky German Debt Is Winning Followers Abroad

When a beloved local product ramps up production, there’s always a question of whether it can gain new fans without losing what made it special. Something similar has been happening with a German credit instrument known as Schuldschein, until recent years a hidden corner of the European debt market. As the region confronts Russia’s war in Ukraine and inflation, the Schuldschein market has been resilient, posting a record year in 2022 and a strong start to 2023.

Schuldschein (pronounced schult-shine) provides an alternative way to raise funds. Not quite a loan and not quite a bond, traditional Schuldschein promissory notes were created by German lenders for reputable local borrowers such as real estate firm Vonovia SE, and supermarket chains Hofer and Lidl. Deals can run from €10 million ($10.6 million) to more than €2 billion, and they can include tranches of different maturities and currencies. In the first quarter of 2023, the market saw a record €2.7 billion transaction for Porsche Automobil Holding SE. Raising a Schuldschein is similar to obtaining a loan: A company asks one or more banks to arrange a deal, which is then syndicated before final pricing is set. Each tranche is then divided up into various-sized slices and issued to lenders, who sometimes number in the hundreds.