Restructuring & Refinancing

Due to the Corona crisis, a large number of companies from a wide range of industries have run into serious and sometimes existence-threatening difficulties. These range from temporary loss of sales due to lockdown to permanent declines in demand with largely the same cost structure. The direct effects on the liquidity situation of the companies affected have so far been largely cushioned by emergency aid measures such as short-time working, emergency government aid, KfW loans and, in many cases, drawing on existing current account credit lines. In addition, the suspension of the obligation to file for insolvency until (for the time being) the end of September has so far prevented a wave of insolvency applications. However, such measures do not solve the causes of the serious problems, but merely conceal the symptoms and delay the solution of the problem. The consequences of an increased use of loans with a simultaneous strain on economic performance will undoubtedly lead to an increase in covenant breaches in the short term and to a rise in loan defaults in the medium term. All leading corporate client banks will be equally affected, with the three large commercial banks (Deutsche Bank, Commerzbank and HVB/Unicredit) leading the way, followed by Landesbanken and savings banks (LBBW, Helaba, BayernLB and savings banks) as well as DZ Bank, HSBC and BNP Paribas. It will be important for the banks to seek solutions in good time and together with the borrowers. As the liquidity reserves of the affected borrowers run out, the scope for action and the chances of finding a non-insolvency solution will become increasingly limited.

Specifically, we see the following developments in the short and medium term in particular as affecting the savings banks:

The number of "problem sectors" is increasing: even before Corona, various sectors were already listed (including automotive suppliers, machine tool manufacturers, printers, fashion, furniture, etc.). Corona has further aggravated the problems and additional problem industries have been added (including tour operators, retail, hotels, restaurants, event agencies, etc.). Many of the industries affected are characterised by small and medium-sized enterprises and thus belong to the typical customer base of the savings banks.

Sales slumps and lagging financial ratios: The financial performance of the affected companies is characterised by a sometimes sharp decline in incoming orders and sales, high fixed costs, operating losses and negative cash flows. The key financial figures are usually reported on a quarterly or semi-annual basis, each time with an approximately 6-week lag to the reporting date. We expect a first wave of covenant breaches from around mid-August (H1-2020 Reporting) and a significant wave of covenant breaches from the Q3-2020 reporting date.

Wave of insolvencies at the end of September? The obligation to file for insolvency due to insolvency and over-indebtedness is temporarily suspended until the end of September 2020. Many companies have so far been able to mitigate the consequences of the Corona crisis by taking advantage of emergency aid, short-time work and KfW loans. When these measures come to an end and the obligation to file for insolvency is reinstated, a wave of insolvency applications is currently expected from the end of September.

Time to react. We strongly recommend not to wait until the covenant breaches occur or insolvency maturity is reached, but to act immediately and to use the time proactively to (i) identify borrowers at risk and (ii) examine options together with the borrowers in order to protect the value of the borrowed capital (as well as the equity) as far as possible. The earlier appropriate measures are initiated, the greater the scope for action and the range of possible options.

Our CF-MB team will be happy to help you and your borrowers develop options to protect the value of your loans as well as the continued existence of your clients. Our services include in particular the support of the workout team of the savings bank in the event of capacity bottlenecks, valuation issues, in special situations (e.g. insolvency in self-administration §270 a/b InsO) or in international transactions. As an extended workbench of the savings banks, we can also create quick check reports and carry out covenant checks. The representation of your savings bank, e.g. in the case of syndicated loans / sub-participations, for example to avoid conflicts of interest with the syndicate partner, is also covered by the service portfolio of CF-MB. On request, we also offer to take over the transaction management, sell receivables on the secondary market, prepare templates in savings bank format and present the results in committees / risk committees.

Your advantages at a glance:

•     Creation of transparency - Quick Check Reports (initiative of the savings bank / for the account of the borrowers)
•     Provision of experienced workout capacities - relief of the savings bank team during peak periods as an extended workbench
•     Takeover of transaction management - in complex special situations (international environment, syndicate financing)
•     Processing individual cases in close coordination with the corporate customer advisor / workout team of the Sparkasse

Liquidity planning: It is currently of central importance for your company to prevent liquidity bottlenecks. Preventive measures that you can take include in particular professional working capital management, factoring and sale & leaseback financing. In addition, more than ever, you need to pay attention to a functioning reporting system and detailed financial and liquidity planning. As your Corporate Finance Specialist, CF-MB is at your side to advise you on all these challenges.

Restructuring: Restructuring can also be an option to combat a crisis. Potential measures include, among others, an analysis of the debt sustainability, Amend & Extend, the provision of additional collateral, shareholder loans / shareholders' equity, subordination agreements or debt-equity swaps as well as asset sales / partial business disposals. Our team of restructuring experts develops financing concepts tailored to your needs and professionally implements the corresponding financing measures.

Your advantages at a glance:

•     Support for borrowers in the preparation of an integrated financial plan / plausibility check of planning assumptions
•     Assistance with restructuring measures (analysis of debt sustainability, Amend & Extend, shareholder contributions, asset sales / distressed M&A)
•     Support of borrowers in obtaining liquidity (sale & lease-back / factoring / working capital management)