European Commission approves Bavarian fund to enable up to €46 billion of liquidity and capital support to enterprises in Bavaria in the context of the coronavirus outbreak
The European Commission has approved German plans to set up a €46 billion fund at the level of the German State (Land) of Bavaria to provide guarantees and invest through debt and equity instruments in enterprises affected by the coronavirus outbreak in Bavaria. The scheme was approved under the State aid Temporary Framework.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This Bavarian fund will mobilise €46 billion of liquidity and capital support to help medium-sized enterprises that are particularly important for the real economy of Bavaria to weather the crisis. The measure ensures that the State is sufficiently remunerated for the risk taxpayers assume, and, as regards recapitalisation measures, that there are incentives for the State to exit as soon as possible, and that the support comes with adequate conditions, including a ban on dividends, bonus payments as well as further measures to limit distortions of competition. We continue to work closely with Member States to ensure that national support measures can be implemented as quickly and effectively as possible, in line with EU rules. ”
The German support measures
Germany notified to the Commission under the Temporary Framework a fund (”BayernFonds”), with a target size of up to €46 billion, that will provide liquidity and capital support to enterprises that are important for the real economy in Bavaria and that were affected by the coronavirus outbreak.
Under the scheme, the support will take the form of (I) guarantees (that are expected to mobilise €26 billion), as well as (II) subsidised debt instruments in form of subordinated loans, and (III) recapitalisation instruments (in total up to €20 billion), in particular equity instruments (acquisition of newly issued ordinary and preferred shares or other forms of shareholding) and hybrid capital instruments (namely convertible bonds and silent participations).
The scheme, which is mostly targeted at medium-sized companies in Bavaria, complements the support that companies can receive under the German Federal Economic Stabilisation Fund that the Commission approved on 8 July 2020 and that is mostly targeted at larger companies. Companies that receive aid under the Federal Economic Stabilisation Fund will not be eligible to receive aid under the Bavarian fund. However, aid can be co-financed by both funds.*
The Commission found that the Bavarian scheme notified by Germany is in line with the conditions set out in the Temporary Framework. In particular:
With respect to aid in form of guarantees, (i) the underlying loan amount per company is limited to what is needed to cover its liquidity needs for the foreseeable future; (ii) the guarantees are limited to a maximum duration of six years; (iii) the guarantees will only be provided until the end of this year; (iv) the guarantees can only cover up to 90% of the risk; (v) guarantee fee premiums comply with the minimum levels foreseen by the Temporary Framework.
With respect to aid in the form of subordinated loans, the scheme (i) covers working capital and investment needs with a limited maturity and size; (ii) is limited in time; (iii) provides for an adequate remuneration for the State;; (iv) provides that subordinated loans with a volume that exceeds the relevant limits in the Temporary Framework will comply with the conditions applicable to recapitalisation measures.
With respect to recapitalisation measures, (i) support is available to companies if it is needed to maintain operations, no other appropriate solution is available, and it is in the common interest to intervene; (ii) support is limited to the amount necessary to ensure the viability of beneficiaries and does not go beyond restoring their capital structure before the coronavirus outbreak; (iii) the scheme provides an adequate remuneration for the State; (iv) the conditions of the measures incentivise beneficiaries and/or their owners to repay the support as early as possible (inter alia through progressive increases in remuneration, a dividend ban as well as a cap on the remuneration of management and a ban of bonus payments to management); (v) safeguards are in place to ensure that beneficiaries do not unduly benefit from the recapitalisation aid by the State to the detriment of fair competition in the Single Market, such as an acquisition ban to avoid aggressive commercial expansion; and (vi) aid to a company above the threshold of €250 million has to be notified separately for individual assessment.
Finally, only companies that were not considered to be in difficulty already on 31 December 2019 are eligible for aid under this scheme. This requirement may be eased for micro or small enterprises, in line with the provisions of the Temporary Framework.
The Commission concluded that the Bavarian scheme will contribute to managing the economic impact of the coronavirus outbreak in Bavaria. Furthermore, it is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework.
On this basis, the Commission approved the scheme under EU State aid rules.