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Coronavirus - Bavaria-Funds (BayernFonds): State recapitalisation aid of the State of Bavaria to companies in the COVID-19 crisis - Germany

  • Germany
  • Banking and finance
  • Coronavirus - Country overview

05-05-2020

1. Overview

| To stabilize domestic companies in the real economy in the COVID-19 crisis, the State of Bavaria has enacted the Bavaria Funds and Finance Agency Law (BayFoG), which comes into force on May 1, 2020. With the BayFoG, the State of Bavaria is closely aligned with the Act on the Establishment of the Economic Stabilisation Fund (WstFG) passed by the Federal legislator in March 2020. In contrast to the Economic Stabilisation Fund (WSF), the Bayern-Funds is also available to small and medium-sized companies.

| The BayernFonds aims to stabilize the companies in the real economy affected by the COVID-19 crisis in Bavaria by overcoming liquidity bottlenecks and strengthening the capital base of companies whose existence would be threatened by significant effects on the economy, technological sovereignty, security of supply, critical infrastructures or the labour market in Bavaria.

| A newly established Bavarian Finance Agency will be entrusted with the management of the non-legally capable special asset Bavaria-Funds. 

| Cornerstones of the WSF:

  • Government guarantees of the State of Bavaria for new debt instruments and new liabilities of companies will be issued up to EUR 26 billion.
  • The Bavaria-Funds will participate in the "recapitalisation" of companies.
  • Loan authorisation in the amount of EUR 20 billion to cover expenses and measures according to the BayFoG.

| Bavaria-Funds applications should be submitted to the Bavarian State Ministry of Economic Affairs, Regional Development and Energy (StMWi). At present, no applications are accepted yet.

| The StMWi decides in agreement with the Ministry of Finance and Homeland Affairs of the Bavarian State (StMFH) on applications from companies at its own discretion.

| The stabilisation measures must be compatible with EU state aid law and must be notified to the European Commission. The law has yet to be examined by the European Commission under state aid law.

2. Stabilising measures

2.1. State guarantees

| for new debt instruments and liabilities arising up to 31.12.2021

| the term of the guarantees and the liabilities to be hedged may not exceed 60 months

| details regarding the type of guarantees and risks to be covered, calculation of the guarantee amounts, counter-performance, ceilings, etc. will be determined in a pending regulation

2.2. Recapitalisation

| acquisition of:

  • shares in companies
  • silent partnerships
  • other components of equity

| Subscription to:

  • subordinated debt instruments
  • hybrid bonds
  • participation rights
  • convertible bonds

| the recapitalisation is carried out at market conditions

| details regarding consideration and other conditions, upper limits etc. will be regulated in a pending regulation

3. Application requirements

| Eligible for application are companies in the real economy with their headquarters or main focus of activity in Bavaria that did not yet receive a stabilization measure of the WSF.

| Companies in the real economy that have met two of the following three criteria in two consecutive financial years prior to 1 January 2020 are eligible to apply:

  • balance sheet total greater than EUR 43 million
  • sales revenues of more than EUR 50 million
  • more than 249 employees on an annual average

| Further, eligibility for application requires that the company has met at least two of the following three criteria in the last completed financial year before 1 January 2020:

  • balance sheet total greater than EUR 10 million
  • sales revenues of more than EUR 10 million
  • at least 50 employees

or, concerning start-ups:

  • Since 1 January 2017, at least one completed round of financing from private capital providers in the amount of at least EUR 5 million.

| Requirements for measures from the Bavaria-Funds:

  • no "company in economic difficulties" within the meaning of EU state aid law by 31.12.2019
  • no other financing options are available
  • there is a clear (independent) prospect for continuation after the current crisis
  • companies must guarantee a sound and prudent business policy, in particular, they should make a contribution to the stabilization of production chains and to securing jobs

| Companies that receive stabilisation measures must fulfil certain conditions (with regard to the use of the funds raised, remuneration of the executive bodies, avoidance of distortions of competition, further borrowing, distribution of dividends, etc.).

| The Bavarian Finance Agency is authorised to send its own representatives to the meetings of the Supervisory Board and its committees in the case of companies which make use of stabilisation measures, insofar as matters are discussed which have an impact on the stabilisation measures.

4. Facilitating Implementation

| In order to ensure that the stabilization measures can be implemented as flexibly and quickly as possible, a number of simplifications apply to capital increases in the case of an stock company (AG), joint-stock company (KGaA) or Societas Europaea (SE) (deadlines for invitations to annual general meetings, exclusion of subscription rights for existing shareholders, advance payment by the fund, special profit preferences for the fund, etc.).

| The Fund as silent partner may be granted the right to convert the silent partnership into new shares of the Company. The subscription right is expressly excluded for these conversions.

| Facilitated issue of profit participation rights and bonds.

| Significant changes in the law on limited liability companies (GmbH) and in the case of resolutions of companies with the legal form of a GmbH & Co. KG.

| Extensive amendments to the Securities Trading Act (WpHG) and Securities Acquisition and Takeover Act (WpÜG).

5. Information required for the application (indicative)

5.1. Historical data

| Annual financial statements/consolidated financial statements

| Profit and loss account, balance sheet and cash flow statement 2016–18

| (Preliminary) results for 2019

| Sales breakdown by region/products/customer

5.2. Current business & planning

| order backlog and order intake

| detailed liquidity planning for the next 13 weeks

| liquidity planning before/after COVID-19 for the next 12/18 months

Presentation of COVID-19 effects, measures derived from them, implementation status and costs/savings

| integrated business planning before/after COVID-19 with a scenario analysis for the repayment of the loans taken out

5.3. Further specifications

| business model overview

| employees and Management

| contract structure with major customers/suppliers

| overview of financing agreements, bank statistics

| profit and loss transfer agreements

| credit rating, if available

6. How we can support you

6.1. Preliminary examination

| application requirements and prospects of success

| admissibility under State aid law

| requirement for approval under EU antitrust law

| compatibility with existing financing

| compatibility with other contractual relationships

| preliminary inquiry with BMWi/BMF

6.2. Creating the necessary conditions

| draft of the required shareholder resolutions

| preparation and implementation of shareholders' meetings

| adjustment of articles of association

| negotiations with existing contractual partners

| adaptation of existing contracts, if necessary

| obtaining necessary declarations from existing contractual partners (Waiver)

6.3. Application and implementation of stabilisation measures

| preparation of the application documents

| communication with the authorities

| drawing up and implementing the relevant documentation:

  • guarantees/sureties
  • investment agreements
  • subordinated loans
  • participation right conditions
  • bond terms
  • etc.

7. Experience and contacts

7.1. Experience

The BayFoG is largely based on law establishing the WSF on the federal level, which itself is an extension of the Financial Market Stabilisation Fund Act from the time of the financial market crisis.

| advising the major US investor JC Flowers on SoFFin stabilisation measures for banks in connection with the financial market crisis

| advising a major foreign bank on SoFFin stabilisation measures in connection with the financial market crisis