GERMANY Law and Practice Contributed by: Michael Josenhans, Anouschka Zagorski and Christina Banz, Freshfields
ing the waiver of financial covenants, the extension of existing loans or the adjustment of existing terms. 1.3 The High-Yield Market The high-yield bond market in Europe is also of con- siderable significance. In 2024, it reached a new record with total issuances amounting to EUR159 bil- lion, marking the second highest volume ever record- ed after the peak in 2021. This success is largely due to the fact that Germany is Europe’s biggest economy. This trend continued in 2025: in June 2025, issuanc- es amounted to approximately EUR23 billion, about EUR5 billion more than the previous record month of June 2021. With a total of 44 new issuances, June 2025 also marked an all-time high for a single month. Against the backdrop of current US trade policy and the associated unpredictability from an investor per- spective, there has been a shift of capital from the US market to Europe. As a result, the European high-yield market is continu- ing to gain in attractiveness. Over the years, the German high-yield and leveraged loan markets have gradually assimilated their cov- enant packages and overall documentation terms. With a growing number of high-yield bond issuances being secured, there is a noticeable number of typi- cal “covenant-lite” provisions in large-cap leveraged term loans. Despite this trend towards assimilating loan and high- yield documentation terms, certain differences are worth mentioning. In light of the interest rate volatility, some companies have considered issuing fixed-rate notes. Loans generally continue to have more exten- sive undertakings and events of default, allowing lend- ers to demand economic or legal adjustments if bor-
prises are increasingly turning to alternative forms of financing. Debt funds, which have traditionally focused on small- and mid-cap leveraged buyouts, are also playing an increasingly important role in corporate and acquisi- tion financing in the large-cap segment. In addition to classic unitranche solutions for large transactions, they are increasingly competing directly with syndi- cated and high-yield markets. Direct lending by alternative credit providers typically offers certain benefits over traditional bank lending, including: • no syndication risk, since the debt is held to matu- rity; • flexible and borrower-friendly covenants; • financing at higher leverage multiples; and • greater execution speed. 1.5 Banking and Finance Techniques The unitranche offerings have resulted in a high num- ber of super senior bank products – typically revolv- ing credit facilities and related hedging, though more recently also in the form of additional term debt. This trend has led to new intercreditor arrangements. The recent trend towards reduced leverage via senior debt, and the need for additional leverage in com- petitive auctions or distressed situations, has resulted in payment-in-kind (PIK) HoldCo or preferred equity structures. These products, which are provided by the growing number of very flexible “capital solution providers”, do not require intercreditor agreements as they are structurally subordinated to the senior loans, though the higher risk triggers a substantial increase in pricing. Venture debt is another popular form of financing, par- ticularly in the German market, allowing an increas- ing number of start-ups to raise additional capital to finance growth without further diluting their ownership and benefiting from flexible repayment terms. 1.6 ESG/Sustainability-Linked Lending Environmental, social and governance (ESG) and other sustainability-linked lending is now firmly established
rowers seek amendments or waivers. 1.4 Alternative Credit Providers
As mentioned in 1.1 The Regulatory Environment and Economic Background , interest in alternative credit providers continues to rise in the German loan market in 2025. In particular, small and medium-sized enter-
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