GERMANY Trends and Developments Contributed by: Michael Josenhans, Lucas Lengersdorf and Beatrice Zobel, Freshfields
acceleration or direct insolvency actions. The chal - lenge is to strike a balance that avoids recharacterisa - tion risk, which could undermine both structure and sponsorship objectives. Conclusion: practical guidance for investors and sponsors The increased popularity of holdco instruments repre - sents a major development in private capital, provid - ing sponsors and investors with more flexibility and avenues for creative deal-making. Yet their position at the bottom of the capital stack, and the practical limits on their enforcement, compel investors to pri - oritise strong documentary protections. Anti-layering and anti-short circuit, debt incurrence restrictions, restricted payment restrictions and a comprehensive package of good behaviour rights are essential tools – mitigating challenges of value leakage, unwanted debt layering, and shareholder misalignment.
Best practice entails not only negotiating rigorous covenants but also anticipating the shifting motiva - tions of sponsors and hybridising legal protections with commercial influence. These strategies prove most valuable in circumstances of underperformance, when leverage is high and shareholders’ incentives diverge from those of lenders. In complex restructur - ings, holdco capital solutions can foster operational continuity, preserve essential stakeholder relation - ships, and navigate jurisdictional constraints that block direct equity participation. As private credit markets continue to evolve amid heightened macroeconomic uncertainty, a sophisti - cated understanding of holdco protections – and the ability to tailor solutions to each deal – will remain vital for all participants seeking efficient, resilient capital outcomes.
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