GERMANY Law and Practice Contributed by: Michael Josenhans, Anouschka Zagorski and Christina Banz, Freshfields
8.5 Structuring Deals Project finance transactions are commonly struc- tured as non-recourse financings in which the project company is set up as a special purpose vehicle. The financing is fully repaid through the free cash flow of the project company; sponsor guarantees are uncom- mon. The project company will most commonly be a lim- ited partnership ( Kommanditgesellschaft ) in which a limited liability company ( Gesellschaft mit beschränk- ter Haftung ) (GmbH) holds the position of the general partner (GmbH & Co KG). Equity contributions are typically made by the sponsors as limited partners. The shares in the general partner are typically held by the sponsors pro rata to their shares as limited partners. Alternatively, they can be held by the limited partnership itself ( Einheitsgesellschaft ), which facili- tates transferability. Further structuring will depend on the risk allocation between the parties and will be subject to all German and EU laws and regulations applicable to the spon- sors, the lending entities, the project company and the sector. 8.6 Common Financing Sources and Typical Structures Financing is usually provided by way of a (senior) bank financing to the project company and subordinated shareholder loans. In certain structures, mezzanine or subordinated PIK HoldCo financing may be taken up by the project company’s holding company. Alternative debt providers play an increasingly impor- tant role in debt funds funding into German project financings, by way of: • subordinated or mezzanine financing; • bridge loans refinanced upon the conclusion of senior financing; • refinancing the equity made available upfront; and • in select cases, functioning even as senior lender. The mix of available financing instruments is some- times accompanied by project bonds or other sources of financings, such as export credit agency financings.
volume exceeds a certain threshold, whereas budget laws may require a tender even if the project remains below such threshold. Procurement regulations fre- quently necessitate a Europe-wide tender and grant the applicant the right to pursue legal remedies before a public procurement tribunal. Implementation Once the project has been awarded and the PPP has been finally negotiated and established, the imple- mentation of the project commences. During this phase, all laws applicable to the relevant project mat- ter need to be observed. 8.3 Governing Law Generally, parties are free to agree on the applicable law governing the agreements (see 6.2 Foreign Law and Jurisdiction ). However, if the project is (or if the relevant assets are) located in Germany, parties usu- ally prefer that German law govern all or some of the agreements to ensure consistency and enforceability in Germany. The parties can also agree to submit the contract to arbitration proceedings. Germany is a party to sev- eral dispute resolution agreements, including but not limited to: • the United Nations Convention on the Recogni- tion and Enforcement of Foreign Arbitral Awards of 1958 (the “New York Convention”); • the Energy Charter Treaty of 1964; • the Geneva Protocol on Arbitration Clauses of 1923; and • the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States of 1965 (the “ICSID Convention”). 8.4 Foreign Ownership Germany generally embraces foreign investments and maintains an open and accommodating stance in this regard, imposing minimal restrictions on such investments. In general, no restrictions exist on for- eign entities owning real property or other resources in Germany. However, in certain exceptional cases, the government needs to be notified and may veto a transaction.
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