Euler Hermes Rating publishes study on the creditworthiness of SMEs & MidCaps in Germany, France, Italy and Spain. Up To One Third of European SMEs & MidCaps Have High Creditworthiness. Overview The European financing environment for SMEs and MidCaps has changed dramatically in recent years. One of the most striking changes is that more and more companies are now raising capital by borrowing directly from private investors. However, the future success of Europe’s growing “direct lending” segment depends not only on the regulatory environment and monetary policy framework, but also on how well these alternative investment funds perform. Their performance, in turn, is largely a function of investment strategy and accurate credit risk assessments.
This analysis first shows that SMEs and MidCaps in general are subject to higher credit risk than global corporates. Nevertheless, up to one third of European SMEs and MidCaps have a high creditworthiness. A comparison of the credit risks of SMEs and MidCaps in Germany, France, Italy and Spain further reveals that cumulative default rates and rating distribution can vary significantly between countries. Apart from the country-specific risk structure, our analysis also identified differences in corporate credit risk within sectors, some of them considerable.
An accurate assessment of the credit risk of European SMEs and MidCaps must be based on a wide range of factors. Assessments should consider not only the unique characteristics of SMEs and MidCaps, but also risks specific to the country and sector. Only a careful analysis of all relevant risk factors will produce an accurate assessment of corporate credit risk. Consideration of these different risks is absolutely essential for the direct lending segment, particularly as it establishes investment criteria, selects companies to invest in and manages overall risk.