GERMANY – German pension funds have welcomed an announcement by international rating agency Moody’s that it will begin rating Schuldscheine (non-negotiable loan certificates) issued by German companies.

Moody’s said its new rating was a useful too that would improve transparency and liquidity in Germany’s Schuldschein market.

Lutz Klaus, head of asset management at the €2.7bn pension fund for German chemicals firm Degussa, agreed, saying that the rating of corporate Schuldscheine was an innovation for that asset class.

“I agree with Moody’s that that the rating will improve transparency and liquidity in the Schuldschein market,” Klaus told IPE from Düsseldorf.

According to Klaus, Degussa Pensionskasse has nearly one-third of its €2.7bn invested in Schuldscheine, though these all originate in the public sector and are investment grade.

Traditionally, Schuldscheine have been issued either by municipal or state governments in Germany. These investment grade bonds form the bedrock of investment by many German pension funds and insurers.

German small- to midsize companies have also begun issuing the bonds. This new development prompted the regulator BaFin to issue new rules for investing in Schuldscheine last September.

Under the new rules, pension funds and insurers that BaFin regulates may invest in Schuldscheine of any type, if the bonds have an investment grade rating and if that rating is reviewed annually.

“We anticipate that, as the market develops through the ability to use external ratings, German insurance companies (and pension funds) will consider investing a greater proportion of funds in this market,” said Andreas Naumann, Moody’s head of business development for western Europe.

“This will enhance the attractiveness of the Schuldschein issuance market for German midsize companies” in particular, Naumann added.

German banks also buy Schuldscheine from local and state governments and then issue Pfandbriefe, or covered bonds backed up by the investment grade debt. Pfandbriefe are also heavily demanded by German pension funds.

In April 2004, Klaus took over as head of asset management at Degussa Pensionskasse from Andreas Poestges. Poestges joined the pension fund for Barmer, a state-chartered German health care firm, where he is board member responsible for portfolio management.

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