GERMANY Law and Practice Contributed by: Michael Josenhans, Anouschka Zagorski and Christina Banz, Freshfields
3.7 Debt Buyback A debt buyback is often contractually permitted but is usually accompanied by the disenfranchisement of the borrower or sponsor in such cases; this means, among other things, that they cannot participate in lender decision-making (and are not counted for vot- ing purposes). Sponsors need to consider the risk of equitable subordination based on statutory German law as well as potential tax consequences. 3.8 Public Acquisition Finance The acquisition of a German public company requires the inclusion of a certain funds concept in the financ- ing documentation, as by law the purchaser is required to prove that it will have the required funds available at the time the public offer is made. The financing is not published but is only reviewed by an interme- diary (a recognised financial institution) which con- firms the certain availability of the funds as required by law. For that purpose, strategic buyers will usually already agree on long-form documentation, while in most cases sponsors will agree on a term sheet and a precedent for the long-form documentation from a previous transaction (sometimes accompanied by an interim loan agreement as a fundable document). 3.9 Recent Legal and Commercial Developments German legislation has established a comprehensive legal framework for voluntary out-of-court restructur- ings (for details, see 7.4 Rescue or Reorganisation Procedures Other Than Insolvency ). As a result, cer- tain provisions of financing agreements have become subject to increased negotiations, though such rene- gotiations need to be closely observed in line with the law. For example, certain lenders have intended to include Stabilisation and Restructuring Act (StaRUG) proceedings as an event of default, even though such provision would be void and potentially cross-con- taminate the rest of the facility agreement. Sanctions Sanctions imposed in connection with the Ukraine war are still drawing close attention to the sanctions claus- es in financing agreements. While in most cases the previous market standard of flexible sanctions provi- sions is sufficient to cater for this increased aware- ness and does not require (extensive) changes, the
continuous development of sanctions laws and funds’ internal policies requires a stronger focus on these provisions. Henceforth, loan documents are expected to include more detailed representations or covenants in this regard. Bail-In Credit agreements often include contractual recogni- tion clauses that acknowledge the potential applica- tion of bail-in powers by resolution authorities. These clauses are intended to facilitate the smooth imple- mentation of bail-in measures and are required in cer- tain circumstances by regulations such as the Bank Recovery and Resolution Directive. 3.10 Usury Laws In respect of a loan governed by German law, the par- ties may not agree upfront to compound interest (ie, interest may not be charged on interest) (Section 248 (1) Civil Code (BGB)) but can do so once the interest is accrued (ie, PIK toggle arrangements are possible). In the case of unpaid interest, default interest may therefore not be applied. However, the same result is reached by agreeing on the obligation to pay lump sum damages ( pauschalierter Schadensersatz ) in the same amount. 3.11 Disclosure Requirements In general, financing agreements do not need to be publicly disclosed. In initial public offerings (IPOs) and bond offerings, summaries of the underlying financial arrangements may need to be published. Separately, certain disclosure requirements exist under German banking regulations. Among other requirements, financial institutions need to notify the German Central Bank of loans with a volume of EUR1 million or more (large exposures) together with cer- tain key information on the borrower. The CRR also includes disclosure requirements concerning risk management, capital adequacy and other relevant aspects, enhancing transparency.
171 CHAMBERS.COM
Powered by FlippingBook