GERMANY Law and Practice Contributed by: Michael Josenhans, Lucas Lengersdorf and Karl Kuhn, Freshfields
3. Structuring and Documentation 3.1 Common Structures Transactions are usually structured as a first lien structure, whereby the unitranche is the domi - nant structure. In most cases, the unitranche is accompanied by a super senior revolving credit facility for working capital needs, and in some cases, by a super senior term facility (first-out structures). These facilities are usually provided by traditional banks. In certain situations, alter - native or subordinated structures (eg, second lien/PIK/mezzanine) may be pursued by the rel - evant borrower. 3.2 Key Documentation Private credit transactions in Germany typically involve several key documents, including the facility agreement, the intercreditor agreement and the security agreements. These documents are often based on Loan Market Association (LMA) precedents, adapted to reflect the specif - ics of the transaction. In sponsor-backed trans - actions, documentation is oftentimes also sub - stantially based on recent/agreed precedents. The facility agreement is usually drafted by bor - rower’s counsel and sets out the loan terms, covenants and repayment schedules, while the intercreditor agreement governs the rights and priorities of different creditor classes and the sharing of transactions security and enforce - ment proceeds. Agreements among lenders are not commonly negotiated separately; instead, lender co-ordination and priorities are addressed within the intercreditor agreement, to which the obligors are also usually a party. In distressed markets, the drafting dynamics may shift, with the lender’s counsel often hold - ing the pen on the main finance documents. This reflects the increased leverage of credi - tors in such scenarios, where tighter covenants,
2.2 Regulators of Private Credit Funds The primary regulator is the BaFin and, where the lender is a large credit institution, the ECB. 2.3 Restrictions on Foreign Investments German private credit funds are only eligible for investment by professional and semi-pro - fessional investors. Other than that, there are no restrictions on investments in private credit funds that are specific to investment law. As regards general restrictions on investment into Germany, there are no foreign currency con - trols but there are reporting obligations in the case of inbound or outbound payments regard - less of currency. However, financial institutions are required to freeze assets of persons subject to EU sanctions. This affects all assets/funds, regardless of currency. Funds subject to a freeze are required to be reported to the competent authorities. 2.4 Compliance and Reporting Requirements Please refer to 2.1 Licensing and Regulatory Approval and 2.3 Restrictions on Foreign Investments . 2.5 Club Lending and Antitrust Club lending by private credit providers can give rise to potential antitrust concerns if there are no appropriate guard rails in place to steer private credit providers away from oversharing of infor - mation, price-fixing, allocation of customers, or other forms of collusion. Risk mitigants include borrower consent, proper documentation of the pro-competitive rationale for club lending in a given case, and implementation of clear compli - ance protocols at all stages.
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