Client Alert

MoFo Germany COVID-19 Update: Liquidity Management in Germany

06 Apr 2020


The outbreak of COVID-19 has had a major impact on European economies. Many companies are facing unexpected shortages and unavailability of liquidity, revenues are stalling and some are struggling to preserve their commercial activities. In this summary, we have set out:

  • Management considerations for liquidity management, for assessing the impact of the availability of cash for the business and on the capital structure of the group.
  • Emergency governmental measures including liquidity made available by KfW (Kreditanstalt für Wiederaufbau) in Germany on the federal level, as already implemented and approved by the EU Commission from a state aid perspective. The adjustments made to existing programs mostly benefit large companies and groups, given that turnover limits are no longer applicable, the available loan amounts are now increased in the same way as the risk assumptions of KfW.
  • Information packages for accessing emergency governmental measures that should be prepared in a timely manner in order to support the fronting bank in the application process with KfW.
  • Economic stabilization measures that are available in addition and as a supplement to the measures made available by KfW, through the German state-owned economic stability fund (Wirtschaftsstabilisierungsfonds, WSF). The WSF is now approved with a total amount of EUR 500 billion. This source offers guarantees for the financial indebtedness of large, strategically important companies, and will have the ability to purchase participations in equity and hybrid instruments of distressed companies. The measures available under the WSF are subject to a stricter scrutiny than KfW loans. Approval by the European Commission is needed for such measures.
  • Steps taken on a European Union level, where the EU has implemented its “Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak”, to allow EU member states to provide comprehensive liquidity measures in order to support national economies.


To manage available liquidity in the group and assess the risk of any default, borrowers should check through the following critical topics:

1.1  Considerations for Business Fundamentals

Assess Your Cash Flow

  • Assess the short-term and long-term impact of the crisis on the business on an ongoing basis and consider downside scenarios, including required payments to be made and impact on incoming cash flow.
  • Regularly monitor and compare cash flow against forecasts, particularly when cash is scarce.
  • If cash flow is tight, consider (i) causes of liquidity issues and (ii) how they can be addressed.  Would access to existing credit commitments or new credit provide assistance?
  • Keep the amount of debtor days and creditor days low with effective credit control and use of contractual mechanisms.
  • Assess whether there is any cash trapped in subsidiaries, and whether that cash can be freed up or any costs can be saved.
  • Consider forbearance of payments (Stundungen) that could be made.
  • Consider whether dividend payments should be made or retained.

Understand Your Market

  • Navigate uncertainty by being knowledgeable about opportunities and threats that an economic climate presents for your business.
  • Be familiar with the pressures on your customers and suppliers. Consider ways you can support customers/clients which also benefit your business.
  • Look at what your competitors are doing. Determine how you can set your business apart to strengthen your performance in a challenging market.

Know Your Duties

  • Encourage management and boards to communicate frequently, and carefully document discussions and decisions.
  • Stay informed about your insolvency filing duties and about the amendments and legislative measures in light of the current crisis [read our client alert for more information].
1.2  Review Terms of Commercial Agreements

Analyze Your Contractual Obligations

  • Summarize and be aware of contractual obligations that may become more difficult to perform.
  • Establish whether you are likely to run into covenant or repeating representation issues that might have an impact on rolling over drawn or drawing down new lines.
  • Examine material adverse change (or force majeure) clauses and their potential impact on your company.
  • Be aware of reporting obligations, and consider whether the required information will still be available by the specified time (e.g., financial statements and audits).

Avoid Potential Breaches and Handle Defaults

  • If you believe you might breach an obligation/covenant, evaluate the options open to you to avoid this situation.
  • Review your finance documents – Are there financial covenants that might be tested and, if so, are there any adjustments that can be utilized?
  • Check for cross-default and cross-acceleration provisions and assess potential cross-exposure (including grace periods).
  • Determine if you can seek a pre-emptive waiver or extension, or undertake other liability management exercises. Be aware that payment deferrals usually require consents of all lenders.
  • Manage your financing institutions through regular updates and dialogue. Handle information with care if company is publicly listed.
  • Consider choosing longer interest periods to avoid roll-overs and repeating representations.
  • Assess existing insolvency clauses to be aware of when they would kick in (e.g., renegotiate of financial indebtedness with creditors).
1.3  Financial Support Options

Assess availability Under Existing Facilities

  • Determine if you have available commitments you can draw on. While it is often easier to draw down on an existing facility, be wary of repeating representations or draw-stops, including material adverse changes.
  • Consider accordion and upsizing possibilities.
  • Discuss factoring options.
  • Seek shareholder support.
  • Use available headrooms and baskets.
  • Consider whether any sale of assets could generate cash.
  • Be aware to what extent new financial indebtedness can be incurred under existing financing agreements.
  • Be aware of the nature of potential lenders – watch out for “loan to own” investors.

Consider Accessing State Aid Measures for Governmental Relief

  • Assess Kfw backed liquidity lines or guarantees.
  • Discuss the Economic Stability Fund measures.
  • Work on an information package for applying for such measures.

See our detailed discussion of these measures below.


The following German governmental liquidity measures are already approved by the EU Commission.

The German Federal Government has expanded existing programs of KfW and has initiated new methods (KfW Special Programme 2020) for providing liquidity in the wake of the current COVID-19 outbreak. KfW’s role in the crisis is to facilitate the short-term supply of liquidity to companies.

2.1  KfW Backed Loan Programs

KfW backed loans are regular loans which will be disbursed and fronted by the commercial (relationship) banks of the relevant company. The uniqueness of KfW backed loans is that KfW will assume (depending on the relevant program) a certain portion of risk towards the fronting commercial bank. While the repayment obligations of the borrowing company remain, the default risk of the borrower will be partially borne by the fronting bank and partially by KfW.

a)  Eligibility

The eligibility for accessing a KfW backed loan requires a registered seat of the company in Germany and further, general COVID-19 related criteria, which are:

  • As of December 31, 2019: The company did not experience financial difficulties (i.e., it was able to obtain credit from financial institutions); and the company shows orderly financial conditions (i.e., the (relationship) bank had no knowledge of payment delays of the company for more than 30 days, any existing arrangements to defer payments (Stundungsvereinbarungen), or any covenant breaches).
  • As of the application date for the KfW backed loan based on current projections and with the assumption of a normalizing overall economic situation (as before the crisis), the company is reasonably expected to be fully financed by December 31, 2020; and under the assumption of a normalizing overall economic situation (as before the crisis), the company has a reasonable going concern.

b)  Terms

For companies which seek funding for investments (including M&A) or working capital purposes or acquisitions, KfW offers participation in a KfW backed loan with a maximum principal amount on the group level of up to EUR 1 billion, but limited to 25 percent of the annual turnover for 2019, twice the labor costs for 2019 or current financing requirements for the next 12 months (large companies) or 18 months (small and medium-sized companies).

Further KfW requirements depend on the size of the borrowing company.

  • Small and Medium- Sized Companies (SMEs)* Interest rates at market terms; KfW risk assumption of 90 percent; tenor up to five years with one year interest only.
  • Large Companies** Interest rate at market terms; KfW risk assumption of 80 percent; Tenor of up to five years with one year interest only.

*  Less than 250 employees and EUR 50 million annual turnover; ** More than 250 employees and EUR 50 million annual turnover or more than EUR 43 million total assets.

The specific applicable product lines of KfW depend on whether the company is on the market for more than five years or less than five years, but financing conditions do not diverge significantly.

2.2  KfW Special Programs – Direct KfW Participation in Syndicated Loans

a)  KfW Participation Options

Within this programme, KfW offers

  • Direct participation in syndicated loan financing based on market terms and financing available to the other banks or financing partners;
  • No maximum loan amount applies;
  • Risk sub-participation up to 80 percent of the risk, but not more than 50 percent of the total indebtedness of the company; or
  • Refinancing options for participating banks through funding sub-participations.

KfW’s participation aims at increasing the company’s chances of obtaining individually structured and tailor-made syndicated financing.

b)  Eligibility

Companies with registered seats in Germany or foreign companies which seek financing for projects in Germany are eligible. Investments of German companies or their foreign subsidiaries outside Germany are not eligible. Further eligibility criteria are those set out above under the KfW Backed Loan Programs.

This program is available until December 21, 2020.

c)  Terms

KfW’s commitment is for working capital or investments with a maturity of up to six years, with a minimum commitment of EUR 25 million, but limited to 25 percent of the annual turnover for 2019, twice the labor costs for 2019, or current financing requirements for the next 12 months.

2.3  Guarantees and Large Guarantee Programs

In addition to the KfW loan programs, the following guarantee programs are available in Germany:

a)  General Guarantee Programs

Guarantees of up to EUR 2.5 million are made available in all states in Germany for SMEs and startups through guarantee banks (Bürgschaftsbanken) for working capital lines and investments on a federal and state level.

b)  Large Guarantee Programs

In addition to programs for guarantees above EUR 20 million, large guarantee programs are available on a federal and state level. The programs are available until December 31, 2020. For working capital lines or investments above EUR 50 million, guarantees are available for a risk of up to 80 percent to the extent such risk is shared equally (50/50) between the federal and state levels.


Applications for KfW loans are made with relationship banks or other finance partners which may approach KfW with inquiries regarding eligibility first.

Documents required for application and/or inquiry are in particular the following: List of existing lenders as of December 31, 2019; Organizational chart of the group with all entities; Overview of shareholder structure; annual reports for 2018 and 2019, or preliminary versions if the 2019 final version is not available yet; performance (management accounts) from before COVID-19 outbreak; a brief company presentation; a summary of existing capital structure; a description of financing requests; the amount of current liquidity and breakdown/details; a liquidity plan (adjusted with impacts of COVID-19 on operations) showing the rationale for the financing request.

It seems that the priorities of KfW in the application process are ranked based on immediate liquidity needs, and to the extent indication is given that funding could be made available, approval processes seem to take not less than 2 to 3 weeks.


In addition and as a supplement to the measures made available through KfW, the German state-owned economic stability fund (Wirtschaftsstabilisierungsfonds, WSF) was approved with a total volume of EUR 500 billion, which will offer guarantees for the financial indebtedness of large, strategically important companies and will have the ability to purchase equity in distressed companies. EUR 400 billion is available for liquidity, EUR 100 million for recapitalization – see below, and there is an additional EUR 100 billion available for refinancing of KfW Special Programs.

Measures under the WSF are available until December 31, 2021.

a)  Eligibility

Only companies that participate in the real economy (not financial institutions) are eligible to apply for support under the WSF. Whether measures will be applied will be determined by the Federal Ministry for Economic Affairs and Energy and the Federal Ministry of Finance.

Generally, large companies (as per the EU definition) are eligible and they must fulfill two of the following three criteria based on financial statements before January 1, 2020: They must have a balance sheet of more that EUR 43 million; more than EUR 50 million in total revenues per annum; and a yearly average of 249 employees.

In exceptional cases, SMEs can be eligible for measures under the WSF if they are critical to the German economy (within the meaning of the Foreign Trade Regulation). Eligible sectors would be: healthcare, energy, food, transportation, telecommunications, IT, media, finance, insurance, and cloud computing.

The companies must prove that no other financing resources are available to them (i.e., liquidity is only available through KfW). The company should not have experienced financial distress before December 31, 2019 and should have a clear going-concern prognosis.

b)  Terms

The conditions for and terms of these measures will more strict than the ones under which KfW is providing liquidity and are subject to EU approval.

c)  Available Instruments under the WSF

  • Guarantees with a total volume of EUR 400 billion for financial indebtedness of companies in order to support the refinancing of their respective instruments. The respective guarantees and secured financial indebtedness can have a maturity of up to 60 months. Details of the conditions for such guarantees will be set out in more detail in separate regulations. These guarantees are expected to be granted on an arms’ length basis but will nevertheless be subject to state aid rules (Beihilferecht) and guarantees subject to approval of the European Commission.
  • Participations with a total volume of EUR 100 billion in equity and hybrid instruments (e.g., bonds, IoUs, and silent participations). Details about purchase price and exit options will be set out in a separate regulation.


The European Central Bank (ECB) has taken the following relevant measures to directly or indirectly support companies in the EU with a view to the COVID-19 outbreak:

a)  Pandemic Emergency Purchase Program and Additional Net Asset Purchase Program

ECB launched a EUR 750 billion asset purchase program of private and public sector securities. Purchases and an additional EUR 120 billion net asset purchase program, each of which will be conducted until the end of 2020, will include all of the asset categories eligible under the existing asset purchase program (including commercial paper, medium term notes, and Schuldschein loans, if applicable).

b)  ECB Banking Supervision Provides Temporary Capital and Operational Relief for Banks to Facilitate Granting of Credit

ECB launched measures to ensure that its directly supervised banks can continue to fulfill their roles in funding the real economy. In particular, such banks are allowed to fully use capital and liquidity buffers, including Pillar 2 Guidance. Additionally, such banks will be allowed to partially use capital instruments that do not qualify as Common Equity Tier 1 (CET1) capital, for example Additional Tier 1 (AT1) or Tier 2 instruments, to meet Pillar 2 Requirements. The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) also applies these measures to less significant institutions in Germany.



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