European Commission sets State aid framework for public recapitalizations and subordinated debt

Background

On 19 March 2020 (amended on 3 April 2020), the European Commission (“Commission”) adopted a “Temporary Framework” for State aid measures that identifies the scope of far-reaching rescue measures Member States implement for companies (please see also our news of 06.04.2020 and 16.03.2020). It sets the conditions pursuant to which the following measures are compatible with Community law: (i) direct grants, tax advantages, repayable advances with a nominal value of up to EUR 800.000; (ii) state guarantees; (iii) subsidized rates for loans; (iii) short term export credit insurances; (v) support for coronavirus-related R&D, products and facilities; (vi) deferral of tax payments/suspensions of social security; and (vii) wage subsidies for employees.

To-date, the Commission has approved an estimated EUR 1.9 trillion in State aid to the EU economy, and issued more than 100 respective decisions on that basis. Nevertheless, it became clear that the losses many companies have incurred by the far-reaching lock downs reflecting negatively on their equity and adversely affecting their ability to borrow from financial institutions. Following consultations and controversial discussions with Member States, the Commission accepted that, as a last resort, Member State can provide well-targeted equity and/or hybrid capital instruments to companies in order to reduce the risk of multiple insolvencies, provided that clear conditions apply. It encourages Member States to take the green transformation and the digital transition – key objectives under Commission President Ursula von der Leyen – into account when designing such support measures.

On 8 May 2020, the Commission therefore adopted the second amendment of the Temporary Framework (“Amendment”) that identifies the scope for public recapitalization schemes and individual recapitalization measures for non-financial companies, and introduces the possibility for Member States to grant subordinated debts. The Amendment further provides certain clarifications as to the existing aid instruments, and to the monitoring and final provisions. Subordinated debt are now accepted as an appropriate means to support undertakings in Corona-caused distress as long as they comply with – modified – conditions applicable for subsidized interest loans. Member States are now expected to finalize their national schemes that have to be notified to, and approved by, the Commission before the measures can be implemented (in Germany, it concerns the Wirtschaftsstabilisierungsfondsgesetz). 

The detailed version of our article can be found here.