KfW - Liquidity support for companies

Background

The current crisis is aggravating the liquidity situation of a number of companies of all sizes and from all areas (e.g. suppliers, organisers, taxi companies, catering, small and large businesses, industry). In order to avoid an economic downward spiral, the Federal Government has decided on a package of measures to support companies in handling the corona crisis "unbureaucratically and in the short term”. However, how quickly the measures will actually be implemented remains to be seen in practice.

In any case, swift action is required if a company can foresee that it will soon face a liquidity shortage.

What you need to know: Borrowing from the KfW (passed through the house banks) can lead to a possible violation of provisions of existing financings, especially if these restrict further indebtedness directly or by means of financial covenants. A careful review of the contractual situation is therefore necessary and the consent (by way of a waiver request) of the existing financing partners to the new borrowing must be obtained at an early stage, if necessary. If there is security in place for the existing financing arrangements, it must also be taken into account that the house bank and KfW, wish to participate equally in such existing security. According to our experience in past transactions, negotiations with existing financing partners are often not free of conflict and the actual settlement often takes longer than originally planned. The process should therefore be started as soon as possible after review of the relevant documents (if necessary, after consulting a legal advisor).

How does the federal aid work?

Existing loan programmes (in particular the programmes "KfW-Unternehmerkredit" and "KfW-Wachstum") will be extended / facilitated and new “special” programmes will be made available in order to provide companies with fresh liquidity.

Important: Applications do not have to be submitted to the KfW itself, but to a (house) bank that offers to pass through loans from KfW.

The house bank becomes the company's direct contractual partner and receives the funds from KfW for forwarding to the borrower. Due to this "triangular constellation", the loan agreement must contain special provisions in order to comply with KfW's conditions. The loan agreement therefore has to be drafted individually. In order to be able to keep the relevant timeline, it is often worthwhile to submit an application to the house bank including an individually tailored contract to speed up the process.

The loan programmes

In this overview we only consider the programmes "KfW-Unternehmerkredit" and "KfW-Sonderprogramm” – syndicated financings ≥ EUR 25 million (which, in our understanding, expands the programme “KfW- Wachstum”) and only the possibility to obtain liquidity by means of working capital loans. These programmes can also be used (in combination with working capital loans) for other purposes / projects. Before submitting an application to your house bank, you should carefully analyse which programme is best suited to the needs of the relevant company and whether the following conditions, which are presented in our overview below, are fulfilled.

KfW – Unternehmerkredit (Entrepreneur Loan) (Programme 037/047)¹

• Eligible to apply: commercial companies, which are mainly privately owned and have their registered seat in Germany, as well as freelancers who, in each case, have been active in the market for at least 5 years.

  • Programme 047: SME < 250 employees and annual turnover up to EUR 50 million or annual balance sheet ≤ EUR 43 million.

  • Programme 037: large companies without turnover limit.

  • These programmes are also available for companies with temporary financial difficulties caused by the corona crisis (i.e. with no issues before 31 December 2019 such as outstanding payments for more than 30 days/ deferral agreements or breach of covenants).

  • As of the date of application: additional requirements for applicants are the estimated complete financing (Durchfinanzierung) until 31 December 2020, based on current company´s forecasts and a positive prospect for the continuation of the business in each case assuming a normalizing economic situation.

  • Amount: up to EUR 1 bn. per corporate group and limited to a maximum of:

  • 25% annual turnover for 2019;

  • two times the costs for wages in 2019;

  • current liquidity requirements (18 months for SME/ 12 months for large companies); or

  • for loans > 25 million up to a maximum of 50 % of the total debt.

• Indemnification: on request (i) in case of SMEs up to 90% (new: formerly 50%) and (ii) otherwise up to 80% indemnification, in each case by KfW.

• Interest rates: depend on the creditworthiness of the company (range approx. 1 - 5% per annum).

• Structure: pass-through loan with possible indemnification by KfW.

• Term: (a) 2 years bullet repayment with fixed interest rate or (b) up to 5 years with a maximum of one (1) repayment free year and fixed interest rate for the entire term of the loan.

• Exclusions: certain industries/projects are not eligible (e.g. companies engaged in the exploration and extraction of oil shale). Whether an exclusion applies needs to be examined on a case-by-case basis.

• Combination with other funding programmes: Generally possible, but: no combination with sureties, guarantees, loans with liability exemption, each on the basis of the “Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak” for the same purpose. Additionally, no combination of a financing with indemnification with indemnification support programmes from KfW.

• Commitment: The amount committed by KfW can be drawn down within 12 months in one or several utilisations. A commitment fee of 0.15% per month will be charged for the undrawn amount, starting 2 banking days and 6 months after the date of KfW's commitment.

“KfW – Sonderprogramm” – syndicated financings (Programme 855)²

• Eligible to apply: national and international medium- and large sized commercial companies, which are mainly privately owned for projects/purposes in Germany (international projects/purposes of German companies or their subsidiaries with registered offices outside Germany cannot be (co-)financed).

• Other requirements on applicants:

  • On 31 December 2019: Company is not in financial difficulties pursuant to EU definition and it is in an orderly financial condition (syndicated banks are not aware of outstanding payments of more than 30 days/ deferral agreements or breach of covenants).
  • As of the date of application: estimated complete financing (Durchfinanzierung) until 31 December 2020, based on current company´s forecasts and a positive prospect for the continuation of the business in each case assuming a normalizing economic situation.

• Form:

  • directly as partner of the syndicate;
  • indirectly in form of a risk sub-participation of a lender;
  • optional (additionally,) refinancing of the syndicate partners by means of pass-through loans in the risks of such lenders.

• Amount: Up to 80 % of the risks, but limited to a maximum of 50% of the total debt related risks. In principal the risk share of KfW amounts to at least EUR 25 million and does not exceed:

  • two times the costs for wages in 2019; or
  • 25% of the aggregate annual turnover for 2019; or
  • current liquidity requirements for next 12 months.

• Lending conditions: participation in financings with a term of up to 6 years pari passu to market conditions (i.e. risk participation re. the conditions agreed by the syndicate (among others, term, repayment, margins, commitment fee, fees, collateralisation structure), as long as these are considered adequate by KfW on the basis of a creditworthiness and risk assessment.

• Exclusions: certain industries/projects are not eligible (e.g. companies engaged in the exploration and extraction of oil shale). Whether an exclusion applies needs to be examined on a case-by-case basis.

• Combination with other funding programmes: exclusion of combination with the following funding programmes: (i) subordinated financings from the programme “ERP-Mezzanine für Innovationen und haftungsfreigestellte Kredit aus ERP-Digitalisierungs- und Innovationskredit”; (ii) simultaneously participation of KfW in a financing as syndicate partner and as refinancer of the other syndicate partners by way of liability exempt pass-through loans – especially loans from the “KfW-Sonderprogramm”.

If you need any support (e.g. in relation to reviewing the relevant documents or preparing an application), please do not hesitate to contact your usual contact at Simmons & Simmons.

Read this article in German here.

¹ Based on the "KfW-Sonderprogramm” 2020 info sheet 037/047 - Status 23 March 2020.
² Based on the KfW info sheet “KfW-Sonderprogramm” – direct participation for syndicated financings of commercial businesses 855 credit - Status 03.2020.