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Coronavirus - Economic Stabilisation Fund - Germany

  • Germany
  • Banking and finance

01-04-2020

State recapitalisation aid to companies in the Covid 19 crisis

1. Overview

| within a very short time, the German legislator passed a law to establish an Economic Stabilization Fund (ESF)

| the aim is to stabilize the companies in the real economy affected by the Covid 19 crisis by overcoming liquidity bottlenecks and strengthening the capital base of companies, which if threatened in their continuation, would have significant effects on the economy, technological sovereignty, security of supply, critical infrastructures or the labour market

| the ESF complements the current KfW Special Programmes that were set up in the wake of the Covid 19 crisis

| cornerstones of the ESF:

  • government guarantees for new debt instruments and new liabilities of companies will be issued up to EUR 400 billion
  • EUR 100 billion will be provided for the "recapitalisation" of companies
  • loan authorisation in the amount of EUR 100 billion to refinance KfW programmes

| ESF applications should be submitted to the Federal Ministry of Economics and Energy (BMWi). At present, no applications are accepted yet

| there is no legal claim to stabilization measures. The decision is at the discretion of the Federal Ministry of Finance (BMF)

| the law establishing the ESF is currently still being examined by the European Commission

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 secured liabilities may not exceed 60 months

| details regarding the type of guarantees and risks to be covered, calculation of the guarantee amounts, compensatory measures, 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 compensatory measures and other conditions, ceilings etc. will be regulated in a pending regulation

3. Application requirements

| 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

| in individual cases, smaller companies that are important for critical infrastructure are also supported

| requirements for measures from the ESF:

  • 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.)

4. Special facilities for stock corporations

Special facilitations apply to companies in the legal form of a stock company:

| facilitated exclusion of subscription rights in favour of the stabilisation fund

| possibility of issuing shares to the stabilisation fund with profit preference or liquidity preference

| possibility of advance payments on shareholder contributions of the stabilisation fund

| simplified issues of profit participation certificates, debt securities with qualified subordination and silent participations in the stabilisation fund, no subscription right of the shareholders in the case of a silent participation of the stabilisation fund with conversion right

| far-reaching exceptions from takeover law provisions for the acquisition of equity interests by the stabilisation fund (no mandatory offer, no acting in concert, other requirements for minimum price)

| compliance with the rules for a listing are only required upon transfer of the shares subscribed by the stabilisation fund to third parties

| majority facilitation for direct resolutions of the Annual General Meeting and creation of authorized capital

| compensation liability of shareholders in the event of delay or frustration of stabilization measures

| facilities for stabilisation measures apply accordingly if the new shares are also or exclusively subscribed by third parties

5. Miscellaneous

| the stabilisation measures must be compatible with EU aid law and must be notified to the European Commission

| there will be a comprehensive exemption of the stabilization fund from the antitrust and merger control provisions of the Law Against Unfair Competition (GWB). However, the antitrust and merger control provisions of EU law must still be observed

| in addition, tax benefits for the stabilization fund will be provided

6. Information required for the application (indicative)

6.1. 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

6.2. 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

6.3. 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

7. How we can support you

7.1. 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

7.2. Creating the necessary conditions

| draft of the required shareholder resolutions

| preparation and holding 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)

7.3. 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.

8. Experience and contacts

8.1. Experience

The Economic Stabilisation Fund Act is based on 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