European Commission approves German EUR 500 billion Economy Stabilization Fund

On 8 July 2020, the European Commission (“Commission”) has approved the German Economy Stabilization Fund (see our news) on the basis of the Temporary State Aid Framework. The Framework sets the conditions pursuant to which the far-reaching financial aid measures of Member States are compatible with Community law (see our news). Hence, the state aid obstacles for implementing the following support that the Stabilization Fund provides for companies that have not been in difficulty before 31 December 2019 have been resolved: 

• Guarantees (that are expected to mobilize €400 billion of the total amount). Here, (i) the underlying loan amount per company is limited to what is needed to cover its liquidity needs for the near future; (ii) the guarantees will only be provided until the end of this year; (iii) the guarantees are limited to a maximum duration of six years; (iv) the guarantees can only cover up to 90% of the risk; (v) the guarantee fee premiums comply with the minimum levels foreseen by the Temporary Framework.

• Subsidized debt instruments in 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 adequate remuneration for the State in line with the conditions under the Temporary Framework; (iv) and provides that subordinated loans with a volume that exceeds the relevant limits in the Temporary Framework will comply with the conditions applicable to recapitalization measures.

• Recapitalization instruments (in total up to €100 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). With respect to the recapitalization instruments, (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 incentivize 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 and a ban of bonus payments to management); and (v) safeguards are put in place to make sure that beneficiaries do not unduly benefit from the recapitalization aid by the State to the detriment of fair competition in the Single Market, such as an acquisition ban to avoid aggressive commercial expansion; (vi) aid to a company above the threshold of €250 million has to be notified separately for individual assessment.

The support measures approved today apply in addition to the financial aid schemes approved already before by the Commission (see our summary) so that the total support budget provided by the German stabilization fund amounts to EUR 600 billion.