Three Markets for Financing

Marc Rowan's claim is that public-company CFOs and CEOs now understand there are three places to raise money, and the word now is itself the news, since the third venue is recent enough that its existence is still being learned across corporate finance.¹

The taxonomy

| Market | Best at | Bad at | Why | |---|---|---|---| | Banks | Short-term, anywhere in the world | Long-term | A bank borrows short deposits and lends short: a matched book | | Public markets | Long-term, standardized | Anything bespoke | Requires a security many buyers can price identically | | Private capital | Long-term, bespoke | Cheapness on vanilla paper | Negotiated one to one, structure is a free variable |

The two boundaries

Duration separates banks from the rest. A bank is the best short-term lender. It is not a good long-term lender. This is not a criticism of banks, it is their design: a deposit-funded institution lending long is manufacturing exactly the funding mismatch that kills financial institutions in a crisis. The bank's advantage on short paper and its disability on long paper are the same underlying fact viewed from two angles.¹

Complexity separates public from private. The public market does something very standard; if a borrower wants anything other than plain vanilla, it has to go to the private market. This is the boundary people tend to get wrong, because the intuitive sort is by credit quality, public markets for good borrowers, private markets for risky ones. The counterexample is the roster itself: the largest private investment-grade issuers include Intel, AT&T, Meta, EDF, BP, and Air France, several of the most creditworthy companies in the world. The sort is by structure, not by risk: a financing that marries multiple asset types, staged draws, and unusual collateral can be highly creditworthy while still not being a simple bond a single issuer underwrites in one standard form.¹

Why it is useful

It converts should we use private credit from a question about desperation into a question about shape, answerable through three diagnostics in order: how long is the money needed for, under a year or two points to a bank; can the instrument be described so hundreds of strangers price it the same way, yes points to public markets; does the deal require negotiated structure, multiple asset types, staged draws, offtake contingencies, unusual collateral, that points to private capital. Nothing in that sequence asks whether the borrower is investment grade.¹

The fourth market that is not: the zero option

There is a case this taxonomy quietly assumes away: the borrower who fits none of the three. Before a modern high-yield market existed, below-investment-grade and private companies were not really financed at all; they were cast out from the marketplace, despite representing, by one count, roughly 80 percent of jobs in the economy.² So the taxonomy is not a description of a natural order, it is a description of markets that were deliberately built, one of them within living memory. The relevant policy question is therefore never whether a given risk should exist, only which venue books it. "There's only two places they can get financed," in Rowan's words. "One is the banking system. The second is the investment marketplace." That collapses the three markets above into the two that can actually hold below-investment-grade duration, and it sharpens the duration boundary from a design observation into something closer to a policy rule.²

A caution belongs alongside this addition: only two places is true for the supply of credit and silent about the demand for it. A market can be built for a risk that should not have been financed at all, and someone will lend it somewhere is not itself an argument that the lending is sound. The venue is not the variable that determines soundness; the underwriting is.

Read-across

Michael Saylor's public framework for matching the duration of capital to the duration of an asset is the borrower-side mirror of the duration boundary here: match durations or die on the mismatch, stated from the perspective of the company raising money rather than the institution deciding where to book the risk.