Debt covenants in Germany (especially with kfw financing)

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January 31, 2024

by a searcher from WHU-Otto Beisheim School of Management in Hamburg, Germany

Hi all,

would be keen to learn about what debt covenants (e.g., debt service coverage ratios) banks want to see when they finance transactions in Germany. I'd be especially interested to hear about reference values for financings supported by the KFW.

Thanks a ton

Christian

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Reply by a searcher
from Ludwig in München, Deutschland
I have three inputs:

1. I spoke with PWC director Peter Koch about mixed bank-state financing options, such as those offered by KfW or LfA. PWC represents the state in 6 federal states, so he sees you as a business lead (at least when as in my case you want to buy something in Niedersachsen). He was very helpful and seems to be the easiest contact for this matter. Especially he sees all credit contracts from all banks with LfA financing at least for Niedersachsen completely - since the role of PWC is to check for the state, that there are no risks shifted from buyer or bank towards the state. He stated, that this can only be judged after reviewing the complete credit contract. So my assumption would be, that there are not many persons who (1) have this broad and actual knowhow and (2) are incentivised that you find a deal and the best bank for the deal. Here you can find his contact data: https://www.pwc.de/de/branchen-und-markte/oeffentlicher-sektor/landesbuergschaften-niedersachsen.html
2. He mentioned that Commerzbank actually assumes 5% more risk in their books compared to other banks and he would start with them (i spoke with him on January###-###-#### I haven't verified this yet, but he seems to be a trustworthy expert. By the way, I am looking for risk-taking banks, so any other suggestions to save time would be greatly appreciated. 3. Regarding the exact answer for debt covenants in KfW context, I feel the question hasn't been asked precisely enough. There are different instruments, such as state guarantees (federal guarantees start at 75 million, so they are not highly relevant), subsidies, or credit programs or a mixture by KfW, each with completely different settings when bank financing is involved. Consequently, the requirements from banks probably vary.
commentor profile
Reply by a searcher
from Ludwig in München, Deutschland
I have three inputs: 1.I spoke in January 2024 about a mixed bank-state financing like KfW or LfA with the PWC director Peter Koch. PWC represents the state in 6 federal states, so he sees you as a lead (at least when you think about a bigger deal in Niedersachsen). He was very helpful and probably the easiest way is to make a call with him. He seemed to have seen many transactions and sees all credit contracts at least for Niedersachsen completely, The background is, that PWC checks the risks for the state, so in this role he has access to all deal data including contracts including covenants and should have a good and actual market overview. Here you can find his contact data: https://www.pwc.de/de/branchen-und-markte/oeffentlicher-sektor/landesbuergschaften-niedersachsen.html 2. He said, the Commerzbank actually takes 5% more risks in their books than other banks. I did not check on that yet. By the way, i am looking for risk-taking banks, so any other tip to save time would be great. 3. Regarding the KfW, i feel the question is not asked precisely enought. There are different instruments like Landesbürgschaft (Bundesbürgschaft starts at 75 million, so is not superrelevant), subsidies or credit programmes by KfW, which have completely other settings when they have a banking financing involved. And therefore the requests from banks differ probably.
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