The second German stimulus package providing for, among other things, specific subsidised loan guarantees, was adopted on 20 February 2009. This article looks at the key provisions of two forms of subsidised loan guarantees.Close speedread
The second German stimulus package (Konjunkturpaket II) which provides for, among other things, specific subsidised loan guarantees, was adopted on 20 February 2009 in response not only to the general economic condition, but also to the temporary European Union framework for state aid measures which were implemented as part of the European economic recovery plan to further encourage access to finance and to reduce the current high risk of aversion on the part of banks. The key provisions of two forms of subsidised loan guarantees are highlighted below.
The second German stimulus package comprises, among other things:
Federal and state deficiency guarantees (Ausfallbürgschaften).
Guaranteed loans under specific KfW special programmes (KfW Sonderprogramme).
While the European Commission has, in the past, made the grant of any such subsidised loan guarantees subject to individual approval by it, it has now stipulated specific requirements under the temporary framework which, if satisfied, automatically make the grant of any subsidised loan guarantees permissible (that is, compatible with the common market on the basis of the applicable provisions of the EU Treaty). The main requirements are:
The maximum amount of the guaranteed loan may not exceed the personnel expense of the beneficiary, including social security charges as well as the cost of personnel working on the company site but formally in the payroll of subcontractors, for 2008.
The subsidised loan guarantee may not exceed 90% of the overall loan amount.
The subsidised loan guarantee must have been issued on or before 31 December 2010.
The beneficiary may only have become distressed as a result of the general economic crisis and downturn, but may not have already been structurally weak as a result of mismanagement before 1 July 2008.
Since its introduction, numerous distressed German enterprises have applied for government and KfW support under the stimulus package, including blue chips such as Porsche, Opel, Schaeffler, Arcandor and Infineon - with only a few (such as Heidelberger Druck and Heidelberg Cement) having succeeded so far because of the high bars to participation. These require that:
The business operations of the applicant, including, where applicable, any restructuring plans, and so on. are economically viable (wirtschaftliche tragfähiges Unternehmenskonzept).
The issuance of the relevant subsidised loan guarantee satisfies applicable economic eligibility criteria (volkswirtschaftlich förderungswürdig).
The financing package benefiting from the subsidised loan guarantee would not otherwise be financeable.
In line with its name, the deficiency guarantee covers exactly that: any shortfalls in respect of repayment of the principal amount outstanding under the guaranteed loan facility, including scheduled interest accrued on it, as well as fees, and so on, plus default interest capped at 3% over the applicable German base interest rate (Basiszinssatz) after specific events defining the deficiency (Ausfall) have occurred. In particular if:
And insofar as the relevant borrower has become unable to pay its debts when due as a result of, among other things:
cessation of payment generally;
the opening of insolvency (or similar bankruptcy) proceedings over its assets; or
the issuance of an official declaration in respect of its assets and inability to pay (eidesstattliche Versicherung); and
no (additional) proceeds from the enforcement of the agreed security package or any other assets (Vermögen) of the relevant borrower can be expected; or
if payment of any principal amount plus interest is not received within twelve months of the lenders' written notice of non-payment (such notice to be issued only after the relevant amount has become due and payable (fällig)).
In addition, using the KfW special programme for large companies as an example, the subsidised loan guarantee granted by KfW work such that KfW refinances the loan to the distressed company for the lenders, with the lenders, in specifically defined circumstances, only being required to promptly repay 50% of the refinanced amount to KfW. These circumstances are either:
The opening of insolvency proceedings over the assets of the borrower or the competent court refusing to open insolvency proceedings for lack of assets (mangels Masse).
The lenders having terminated the loan to the borrower as a result of:
a payment default; or
with the prior consent of KfW, one of the other events of default as set out in the loan to the borrower having occurred and the borrower not having repaid the loan in accordance with the acceleration notice and the time period provided for repayment therein by the lenders.