GERMANY Law and Practice Contributed by: Michael Josenhans, Lucas Lengersdorf and Karl Kuhn, Freshfields
Private credit providers in Germany remain heavily focused on sponsors and their portfolio companies, with a clear trend toward diversifi - cation. Increasingly, private credit is becoming a critical funding source for public companies and founder-owned businesses seeking tai - lored, non-dilutive capital solutions. The addi - tion 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 Capital ). 1.7 Recurring Revenue Deals and Late- Stage Lending The recurring revenue market in Germany shows growing maturity, evidenced by increasing pri - vate debt activity, which supports in particular growth capital 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. 1.8 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 flexibility of private debt providers in not solely addressing the needs of mid-market borrowers. Funds have increas - ingly targeted lower mid-market opportunities as competition intensifies for high-quality assets at the top end of the mid-market. Further, a num - ber 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 addi - tional 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 clos - ing. Typical Fund Sizes and Fundraising Challenges In the European private credit market, fund sizes are expanding, particularly for larger, well-estab - lished players. Notable recent examples include ICG raising USD17 billion for its flagship direct lending fund, marking 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. In 2023, 20 European funds alone accounted for EUR95 billion in commitments, averaging approximately EUR4.7 billion per fund. However, smaller and newer funds face sig - nificant fundraising challenges. Investors are increasingly wary of committing fresh capital due to the challenging exit environment and record levels of uninvested dry powder. For every USD2.40 of new fundraising targeted, only USD1 was successfully closed, underscoring difficul - ties for managers without a proven track record or sufficient scale. 1.9 Impending Regulation and Reform EU-regulated alternative investment funds are permitted to originate loans to German borrow - ers 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,
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