Update Capital Markets No. 42

Guarantees of the Economic Stabilization Fund as Security for Bonds to be Issued by Medium-sized Businesses

Since October 21, 2020, the Economic Stabilization Fund (WSF) provides security for corporate bonds by offering guarantees of up to 90% of the bond volume as an additional standard product and can thus also open up alternative financing opportunities to medium-sized businesses by facilitating their access to the capital market.

The federal government has created the Economic Stabilization Fund (WSF) with a total volume of up to 600 billion euros for the stabilization of the economy following the effects of the COVID-19 pandemic. The WSF provides various stabilization measures for large businesses in the real economy where any threat to their existence would have a significant impact on Germany as an economic location or its labor market.

Support previously existed only for large bonds, but since October 21, 2020 there is also a standardized process for securing corporate bonds with a volume of at least 5 million euros through guarantees from the WSF of up to 90 % of the default on the principal claim. Through this initiative, financing on the capital markets should also be easier for medium-sized businesses with liquidity bottlenecks due to the coronavirus and thus alternative financing opportunities will be opened up.

Businesses entitled to support

In principle, businesses that fulfilled two of the following three criteria in the two financial years prior to January 1, 2020 are eligible for these funding measures:

  1. a balance sheet total exceeding 43 million euros;
  2. sales revenues exceeding 50 million euros;
  3. a workforce of more than 249 employees on an annual average.

In this way a substantial number of the larger medium-sized companies should be eligible as issuers for a guarantee.  In addition, SMEs, i.e. smaller medium-sized enterprises, that do not meet the threshold values can also obtain support if they fulfill additional requirements. For this, they must be active in one of the sectors described in Section 55 of the Foreign Trade and Payments Regulation (AWV), meaning for example, critical infrastructure, telecommunications, media, healthcare and medical devices, or have a comparable significance for the safety or the economy of the Federal Republic. Some of the examples provided for this purpose by the WSF project group of the Federal Ministry of Economics and Energy (BMWi) are:

  • Technological USP
  • Corporate technological know-how
  • Support of a government initiative (climate protection program, etc.)
  • Pioneer for foreign operations of other German businesses

Emissions entitled to funding

Entitled to funding are new issues of non-subordinate bonds/debentures for investment or working capital financing, which, due to their unit size and target market criteria, are exclusively targeted at subscription through institutional investors. Placement with retail investors is consequently not possible, but there is also no prospectus requirement for the bond issue. The bond is not required to be listed on the stock exchange. Debt restructuring instruments, i.e. the redemption or direct follow-up financing of existing financing or previously issued bonds, are not entitled to support.

For a support application the following requirements must be met:

  1. As at December 31, 2019, the applicant must not have been an "company in difficulty" under Commission Regulation (EU) No. 651/2019;
  2. There must be no alternative financing opportunities through banks, the capital market or shareholders (a combination with a support program is an exception to this insofar as this is permitted under EU state aid law);
  3. There must be a clear view of the business continuing after the pandemic (including refinancing of the bond); and
  4. The bond must have a minimum volume of 5 million euros and be issued by June 30, 2021 at the latest.

Scope and terms of the guarantee

Insofar as these requirements are fulfilled, a bond can be secured with a guarantee of up to 90% of the default on the principal claim. However, the guarantee may not exceed twice the amount of the wage and salary payments or 25% of the sales revenues in 2019. The term of the bond may be no more than five years. An early repayment is allowed. A guarantee fee is to be paid, which is based on the amount of remuneration (interest) that would be payable on the capital market without the WSF guarantee.

In the case of support through a bond guarantee, the issuer has various obligations to meet, among others a ban on profit distribution and dividends and a ban on the provision of bonuses or similar remuneration to members of executive bodies and executive directors.

Further details on securing bonds through WSF guarantees can be found on the WSF information sheet on this product (accessible here).

Heuking's Opinion

Securing corporate bonds through WSF guarantees can be an effective support measure for bond issues in uncertain pandemic times, particularly for medium-sized businesses. The WSF guarantee significantly increases the security for investors, which causes the inherent attractiveness of the issue to increase and a successful financing becomes a practical possibility.

Also the large denomination of the emission and the accompanying prospectus freedom facilitates the issue of the bond significantly and enables a more efficient and cost-effective intake of outside capital.

We recommend to get in contact with the BMWi WSF project group at the earliest stages to discuss the support eligibility of the bond issue and the further course of action. As, with some of the requirements, especially the eligibility of smaller businesses, the decision will be made on an individual case-by-case basis. After an application has been made, a processing time of an estimated 6 - 8 weeks can be expected until the funds are finally approved. Every support measure is published on the website of the German Finance Agency.


Due to the standardization of the support requirements and the expansion of the guarantee grant to medium-sized businesses as well, it is to be expected that in the next weeks and months more support applications will be made, in order to be able to secure urgently needed new debt capital during the crisis.

You can find more information on the Corona crisis on our topics page.

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