GERMANY Law and Practice Contributed by: Michael Josenhans, Lucas Lengersdorf and Beatrice Zobel, Freshfields
mezzanine debt, and PIK tranches, which offer tai - lored solutions to these businesses. Public Companies While less common compared to sponsor-backed deals, public companies are increasingly considering private credit as an alternative to traditional syndicat - ed loans or bond markets. In Europe, only a fraction of deals in the last twelve months were accounted for by sponsor-less private deals. Private credit gener - ally offers greater structural flexibility, faster execution, and the ability to customise terms; these advantages are particularly attractive during periods of market volatility. Private credit providers in Germany remain heavily focused on sponsors and their portfolio companies, with a clear trend toward diversification. Increasingly, private credit is becoming a critical funding source for public companies and founder-owned businesses seeking tailored, non-dilutive capital solutions. The addition of equity-related features further expands the offering of debt funds, presenting potentially viable structuring solutions for founder-owned businesses and start-ups (see also 3.7 Junior and Hybrid Capi- tal ). 1.6 Recurring Revenue Deals and Late-Stage Lending The recurring revenue market in Germany shows growing maturity, evidenced by increasing private debt activity, which particularly supports growth cap - ital and, in some cases, acquisitions. Private credit providers are active in Germany, as part of a broader European trend. However, recurring-revenue-based financings are not as prominent or established yet as in the UK or US market. 1.7 Deal Sizes, Fund Sizes and Fundraising Typical Size Limits for Private Credit Transactions in Germany Private credit deals in Germany typically span a value range that reaches up to EUR2.5 billion, but with the majority of deals being between EUR50 million and EUR250 million. This wide range highlights the flex - ibility of private debt providers in not solely address - ing the needs of mid-market borrowers. Funds have increasingly targeted lower mid-market opportunities
as competition intensifies for high-quality assets at the top end of the mid-market. Further, a number of private debt providers have signalled their ability to take on large ticket sizes together (up to EUR1 billion) and/or to act as sole lender in certain financings. The latter may offer additional advantages for borrowers in terms of deal execution, overall speed and negotiation of loan documents as well as simplified/more efficient communication channels prior to and after closing. Typical Fund Sizes and Fundraising Challenges In the European private credit market, fund sizes are expanding, particularly for larger, well-established players. Notable recent examples include ICG raising USD17 billion for its flagship direct lending fund, one of the largest such fundraises in Europe. The average size of top private credit funds exceeds EUR1 billion, with a significant portion of global fundraising now flowing to funds exceeding this size threshold. However, smaller and newer funds face significant fundraising challenges. Investors are increasingly wary of committing fresh capital due to the challeng - ing exit environment and record levels of uninvested dry powder. For every USD2.40 of new fundraising targeted, only USD1 was successfully closed, under - scoring difficulties for managers without a proven track record or sufficient scale. 1.8 Impending Regulation and Reform EU-regulated alternative investment funds are permit - ted to originate loans to German borrowers without further restrictions under German law (but restrictions under the law of the home jurisdiction may apply). For German credit funds, the following applies: • only closed-ended – ie, no redemption rights for investors; • eligible for professional and semi-professional investors only; • concentration limit per borrower of 20% of com - mitments, net of cost • leverage limit of 30% of commitments, net of cost; and • no consumer loans. In contrast to other EU investment funds, German credit funds have also been subject to rather restric -
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