prop · H703181 · 2020-06-10 00:00:00 — 9As defined in Article 2(18) of the Commission Regulation (EU) No 651/2014 of 17 2014 declaring certain categories of aid compatible with the internal market (OJ L 187 of 26.6.2014, p. Contributors to the pan-European Guarantee Fund All industries, save for restricted sectors. Special focus on innovation driven sectors (e.g. life sciences, ICT and innovation). Sourcing, structuring, risk appraisal, negotiation, monitoring and restructuring in relation to the investment made by EIB. Ideally, a fast-track procedure should be applied for these operations. The portfolio to cover large number of EU Member States to create a diversified The product will be priced at market terms. The venture debt product will be deployed on market terms or following bespoke State aid regime modelled on the Temporary Framework as agreed with DG The outbreak of COVID-19 is currently affecting EU supply chains and straining solvency of SMEs and mid-caps from every industry with an economic outlook bound to The capped guarantee aims to improve access to finance for enterprises through limited capital relief and loss protection for portfolios of newly originated eligible transactions, as well as refinancing of existing SME and mid-cap obligations. instrument is suitable for large, granular and homogenies portfolios whereas final beneficiaries affected by COVID-19 will be able to obtain working capital and investment loans with reduced collateral requirements. The financial intermediaries (FIs) will benefit from a free-of-charge portfolio guarantee provided by EIF covering defaults at a guarantee rate of up to [] on a transaction- The default coverage will be subject to an overall cap of up to [] with respect to the underlying portfolio. The recoveries on defaulted transactions will be shared pari passu by the FI and the EIF in the same proportion as the default cover [i.e. Amounts committed by EIF (the Guarantor) to FIs can be reallocated in order to optimise the resource utilisation. The re-allocation can be across products (capped vs uncapped, debt vs equity) and geographies. type of financial intermediary, including commercial banks, guarantee societies, microfinance institutions, ethical banks, National Promotional Banks or Institutions and other publicly owned intermediaries, alternative lenders, crowdlenders, debt funds, SPVs, leasing companies and any other financial intermediaries authorised to lend. Reduced collateral requirements, reduced standard credit risk premium on the guaranteed portion of the loan, extended the maturities. [up to ] [up to ] The cap rate is the aggregate net amount which the Guarantor is liable to pay under The EIF aims to deploy the capped guarantee free-of-charge. To ensure the sustainable implementation of the product, the EIF may charge an admin fee to the financial intermediaries. The pricing would also be subject to alignment of the guarantee instrument with State Aid rules. SMEs (up to 249 employees), small mid-caps (up to 500 employees), large mid-caps (up to 3000 employees) sole proprietors, individual farmers and agricultural enterprises will be eligible to benefit from the uncapped guarantee. For avoidance of doubt, Contributors to the pan-European Guarantee Fund. Investment loans, leasing, working capital revolving credit lines (including overdrafts), facilities, documentary finance (bank guarantees, letters of credit, bid bonds), factoring, refinancing of existing obligations, subordinated loans, quasi-equity. Up to EUR [7.5]m Min [3] months to maximum [144] months [24] months The date until which transactions with SMEs and mid-caps can be originated by FIs and included in the guaranteed portfolios. During the Inclusion period, FIs may include new transactions with SMEs and mid-caps in the portfolio to replenish the volumes of expired eligible transactions. For avoidance of doubt, losses on defaulted transactions shall not exceed the maximum aggregate net amount which the guarantor may be liable to pay under the guarantee. All industries (agriculture including), safe for restricted sectors Implementation of the instrument will follow one of the following state aid schemes: Temporary Framework, de minimis regulation or any other bespoke regime as agreed with DG COMP. Adapted for large homogeneous Limited regulatory capital relief. It might limit the incentive for lenders to provide loans to riskier Might not be suitable to support certain high risk sectors impacted by the crisis (e.g. tourism, hotels , restaurants, transportation) Partial loss protection for financial institutions on the guaranteed portion of the loans The COVID-19 crisis has affected severely multiple industries, in particular tourism and hospitality, manufacturing, retail trade and transportation, all of which experience a double-digit drop in revenues. EU based financial intermediaries, already operating under strict regulatory capital requirements, face constraints in providing sufficient funding to businesses operating in the aforementioned industries thus increasing the risk of insolvencies as a result of the temporary lockdown measures. The uncapped guarantee aims to improve access to finance for SMEs through full capital relief and loss protection for portfolios of newly originated eligible transactions, as well as refinancing of existing SME and mid-cap obligations. Though the outbreak is likely to affect SMEs to a larger extent, the market feedback shows that large corporates are also vulnerable to drops on both the demand and supply side: the uncapped guarantee instrument is particularly suitable to provide support to less granular portfolios (compared to the capped guarantees) of larger The FIs will benefit from a remunerated guarantee provided by EIF, on a loan-by-loan basis, covering defaults, at a guarantee rate of up to in respect of SME transactions included in a given portfolio. The recoveries on defaulted transactions will be shared pari passu by the FI and the EIF in the same proportion of the guarantee cover (up to ). Amounts committed by EIF (the Guarantor) to FIs can be reallocated in order to optimise the resource utilisation. The re-allocation can be across products (capped vs uncapped, debt vs equity) and geographies. type of financial intermediary, including commercial banks, guarantee societies, microfinance institutions, ethical banks, National Promotional Banks or Institutions and other publicly owned intermediaries, alternative lenders, crowdlenders, debt funds, SPVs, leasing companies and any other financial intermediaries authorised to lend. Reduced collateral requirements, reduced standard credit risk premium on the guaranteed portion of the loan, extended the maturities, riskier enterprises becoming SMEs (up to 249 employees), small mid-caps (up to 500 employees), large mid-caps (up to 3000 employees) sole proprietors, individual farmers and agricultural enterprises will be eligible to benefit from the uncapped guarantee.For avoidance of doubt, sole proprietors and individual farmers are eligible. Contributors to the pan-European Guarantee Fund, , NPIs. [up to ] First loss piece, covering expected and unexpected losses, is provided free-of- charge, subject to any requirement to align the instrument to State Aid rules. risk taking by the EIF is remunerated. Investment loans, leasing, working capital revolving credit lines (including overdrafts), facilities, documentary finance (bank guarantees, letters of credit, bid bonds), factoring, refinancing of existing obligations, subordinated loans, quasi-equity. Up to EUR [7.5]m Min [3] months to Maximum [144] months [24] months The date until which transactions with SMEs and mid-caps can be originated by FIs and included in the guaranteed portfolios. Not envisaged for uncapped guarantees. All industries (agriculture including), safe for restricted sectors Implementation of the instrument will follow one of the following state aid schemes: Temporary Framework, de minimis regulation or any other bespoke regime as agreed with DG COMP. Capital relief for Financial intermediaries Small costs for the SMEs [due to stronger incentives to support companies taking and capital] Can cover also individual non-granular , it covers all participants (guarantee institutions, specialised/alternative lenders) and types of supported companies Full loss protection for Financial institutions on the guaranteed portion of the loans The counter-guarantee shall be issued by EIF in the context of the for the benefit of NPIs. It shall cover the credit risk associated with guarantees (also known as Intermediary Transactions) that are included in the counter- Subsequently, the Intermediary Transactions will be extended by the NPIs to Financial Intermediaries (e.g. commercial banks) with respect to underlying The underlying SME transactions will cover newly originated, as well as refinancing of existing loans, leases, documentary finance products (e.g. bank guarantees, letters of credit, bid bonds), factoring services and others. In order to ensure an alignment of interest between the Financial Intermediary and the counter-guarantee facility, eligible Intermediary Transactions shall be covered by the EIF at a counter-guarantee rate of up to []. The counter-guarantee can be issued by EIF both as a capped or uncapped facilities. In the case of a uncapped counter-guarantee, own resources could be deployed to provide additional risk taking capacity. Amounts committed by EIF (the Guarantor) to FIs can be reallocated in order to optimise the resource utilisation. The re-allocation can be across products (capped vs uncapped, debt vs equity) and geographies. Reduced collateral requirements, reduced standard credit risk premium on the guaranteed portion of the loan, extended the maturities, riskier enterprises becoming [up to ] SMEs (up to 249 employees), small mid-caps (up to 500 employees), large mid-caps (up to 3000 employees) sole proprietors, individual farmers and agricultural enterprises will be eligible to benefit from the uncapped guarantee. SMEs (up to 249 employees) and mid-caps (up to 3000 employees) Contributors to the pan-European Guarantee Fund, (in case of uncapped counter-guarantee), NPIs. Short-term working capital, overdraft facilities, facilities, documentary finance (bank guarantees, letters of credit, bid bonds), factoring, refinancing of existing obligations, investment loans, leasing, subordinated debt, quasi-equity. Up to EUR [7.5]m Min [3] months to Maximum [144] months All industries (agriculture including), safe for restricted sectors Implementation of the instrument will follow one of the following state aid schemes: Temporary Framework, de minimis regulation or any other bespoke regime as agreed with DG COMP. Same as for capped/uncapped listed Same as for capped/uncapped listed above Product description and policy aims to improve access to finance for micro-enterprises and SMEs in order to address the emergency of the outbreak, sustain employment and support social inclusion. this end, the instrument will provide direct lending (senior and subordinated loans) to financial intermediaries to provide financing to SMEs, micro-enterprises and social enterprises. The EGF would guarantee the risk arising from the exposure to the portfolio of direct financing to financial intermediaries (in whole or in part). Primarily Senior and Subordinated loans (secured or unsecured) to : loans made available to Financial Intermediaries and on-lent directly or indirectly to eligible Final Recipients. Subordinated Loans: loans with a subordinated credit ranking vis- à-vis certain other forms of financing made available to Financial Intermediaries and on-lent directly or indirectly to eligible Final Loans to FIs can feature a maturity up to 120 months. Public and private entities of bodies, such as non-banks, microfinance institutions, social finance providers and bank – mainly unrated banks, non-investment grade banks or banks below a certain size - lending platforms, SPVs which provide debt financing to eligible final recipients. SMEs, microenterprises, social enterprises. Senior and subordinated debt, including investment loans, working capital, revolving credit lines and overdraft; quasi-equity; mezzanine loans; leasing contracts; profit-sharing loans to final All industries (agriculture including), safe for restricted Implementation of the instrument will follow one of the following state aid schemes: Temporary Framework, de minimis regulation or any other bespoke regime as agreed with DG COMP. Tranche guarantees on existing portfolio Provide to European financial intermediaries an instrument to redeploy capital to the benefit of European enterprises. The current economic environment will weight on profitability across the financial sector and will weaken the capitalisation of the Under the current circumstances, traditional lenders tend to tighten the credit standards during periods of uncertainty and higher volatility. While transferring the risk on an existing portfolio and redeploying capital, the securitisation would allow financial intermediaries across Europe to expand their capacity to lend to SMEs. leverage ensured by the securitisation instrument increases the efficiency of the resources allocated to support the extremely high need for financing from enterprises. The intermediaries will commit to provide financing (including working capital lines and/or guarantees) enterprises across Europe for an amount based (i) on the resources allocated and (ii) on the amount of capital redeployed thanks to the tranche guarantee. The proposed instrument will be complementary to portfolio- tranche guarantee measures introduced by local government to support enterprises affected by the current crisis. In addition, its focus on existing portfolios will ensure the complementarity with other products offered by the Pan-EU GF. Given its flexibility, the instrument shall be easily combined with ad-hoc tranche guarantees offered by National Promotional Institutions, national and/or regional guarantee schemes or third party market investors (more relevant in a second This instrument, used in combination with EFSI funds deployed by EIB via securitisation, shall consent a more efficient and effective use of the available funds for the benefit of enterprises type of financial intermediary, including commercial banks, guarantee societies, National Promotional Banks or Institutions and other publicly owned intermediaries, alternative lenders, crowdlenders, debt funds, SPVs, leasing companies and any other financial intermediaries authorised to lend. Existing granular portfolios of loans or leasing contracts originated by the Financial Intermediary in any of the EU Country. maximum concentration per obligor of of the portfolio size. Guarantee (or counter-guarantee) on Tranches of existing Such guarantee shall allow the financial intermediary to redeploy the capital allocated to the existing portfolio, in part or in full, to support new financing to enterprises. Depending the type of financial intermediary (i.e., bank with advanced rating model, standardised rating model or non- banking institutions) and the type of portfolio, the Pan-EU GF shall offer guarantee on different type of tranches including, but not Junior tranches covering expected losses (where expected loss are estimated according to EIF internal methodology) Junior tranches covering expected losses and part of unexpected losses up to the attachment point of a mezzanine tranche indicatively rated B1 (where the internal rating is estimated according to EIF internal methodology) Mezzanine and senior tranche – with rating assigned according to EIF Internal methodology Depending, inter alia, on the PanEU GF allocated resources and the risk transferred by the financial intermediary, the transaction will support the origination of new financing based on the following (preliminary) target multiples on the allocated resources: Tranche guarantees on existing portfolio Additional Portfolio on Allocated [6.0]x [4.0]x [1.5]x Cost of the guarantee Senior and Mezzanine tranches will be rated and priced according the credit policies and procedures of the EIF, which are market Junior tranches are typically not rated and are carried out via bilateral transactions between the financial intermediary and the In the absence of a market price, the EGF guarantee on the junior tranche will feature a remuneration equal to the lower of (i) and (ii) the sum of 1yrEL of the covered tranche and 1yrEL of the covered tranche will be assessed in line with EIF’s credit policies and procedures. The EIF considers as benchmark the premium approved for the Junior Tranche guaranteed by MS under SME Initiative (). For junior tranches with annual expected loss (plus admin fees) lower than the benchmark, the former will apply as remuneration, under the assumption that a private operator entering into the same transaction will seek for remuneration at least equal to the net guarantee calls expected to be paid to the financial intermediary plus admin costs. It is planned that the product will be market conform. not be possible following consultation with DG COMP, an alternative State aid framework will be sought. Purpose and value added Provide liquidity to European financial intermediaries to improve the access to finance of European enterprises affected by the by providing working capital lines and/or other type of financing The Pan-EU GF shall ∙ purchases Notes issued via a bankruptcy remote vehicle securitising an existing portfolio of loans and leasing contracts; and/or ∙ issue guarantee in favour of third party investors in the Notes on the principal and interest due to them. The liquidity available for the FIs will be then redeployed by providing new financing to European enterprises. In case of securitisation of existing portfolios, the intermediaries will commit to originate a new portfolio of loans, leases, working capital lines, revolving credit facilities and overdraft, and/or other type of financing suitable to address the emergency; the additional portfolio will be originated for an amount based on the size of the purchased notes (see multiplier details below). - By providing liquidity, the instrument shall be complementary to all other instruments offered by the Pan- - This instrument will be essential for non-banking financial institution with no access to the ECB. type of financial intermediary, including commercial banks, guarantee societies, National Promotional Banks or Institutions and other publicly owned intermediaries, alternative lenders, crowdlenders, debt funds, SPVs, leasing companies and any other financial intermediaries authorised to lend. Existing (or new) granular portfolios of loans or leasing contracts (or other financial instruments). - Direct investment in notes issued by bankruptcy remote SPVs; - Guarantees in favour of third investors in the notes issued by bankruptcy remote SPVs. The Pan-EU GF shall purchase (or issue a guarantee to third investors in) senior and mezzanine tranches. Depending, inter alia, on the PanEU GF allocated resources and the risk transferred by the financial intermediary, the transaction will support the origination of new financing based on the following (preliminary) target multiples on the allocated resources: Additional Portfolio on Allocated resources [6.0]x [4.0]x [1.5]x Cost of the guarantee Senior and Mezzanine tranches will be rated and priced according the credit policies and procedures of the EIF, which are market It is planned that the product will be market conform. not be possible following consultation with DG COMP, an alternative State aid framework will be sought. Forward starting Tranche guarantees on new portfolio Provide to European financial intermediaries an instrument for managing capital and losses linked to the COVID-19 on a newly originated portfolio of loans and leasing contracts to European The proposed instrument will be complementary to portfolio- tranche guarantee measures introduced by local government to support enterprises affected by the current crisis. Given its flexibility, the instrument shall be easily combined with ad-hoc tranche guarantees offered by National Promotional Institutions or third party market investors (more relevant in a type of financial intermediary, including commercial banks, guarantee societies, National Promotional Banks or Institutions and other publicly owned intermediaries, alternative lenders, crowdlenders, debt funds, SPVs, leasing companies and any other financial intermediaries authorised to lend. New granular portfolios of loans or leasing contracts (or other financial instruments) originated by the Financial Intermediary to enterprises in any of the EU Country contributing to the Pan-EU GF. Indicatively maximum concentration per obligor of of the Guarantee (or counter-guarantee) on Tranches of newly Such guarantee shall allow the financial intermediary to release capital, in part or in full, on the portfolio. Depending the type of financial intermediary (i.e., bank with advanced rating model, standardised rating model or non- banking institutions) and the type of portfolio the Pan-EU GF shall offer guarantee on different type of tranches including, but not Junior tranches covering expected losses (where expected loss are estimated according to EIF internal methodology) Junior tranches covering expected losses unexpected losses up to an attachment point for B1 rating mezzanine (where the internal rating is estimated according to EIF internal methodology) Mezzanine and senior tranche – with rating assigned according to EIF Internal methodology Depending, inter alia, on the PanEU GF allocated resources and the risk transferred by the financial intermediary, the transaction will support the origination of new financing based on the following (preliminary) target multiples on the allocated resources: Forward starting tranche guarantee on new portfolio Portfolio on Allocated resources [6.0]x [4.0]x [1.5]x It is planned that the product will be market conform. not be possible following consultation with DG COMP, an alternative State aid framework will be sought. Diversified debt funds (“DDF”) are an alternative source of flexible, tailor-made debt financing for SMEs and mid-caps in Europe. market emerged in response to the retrenchment of banks and other traditional lenders after the financial crisis. businesses with a broader choice of financing options, as well as offering investors an asset class that links institutional savings with real economic growth. These lenders provide tailored lending with longer tenors, flexible collateral requirements, flexible repayment options and typically have much quicker approval times than traditional lenders. fund manager perspective, demand from enterprises is high with fundraising representing a far greater challenge. can play a beneficial role as a complement to traditional banking lenders by expanding access to credit or by supporting market liquidity, maturity transformation, and risk sharing Fund managers, asset managers, marketplace lending platforms. Enterprises established or operating in the EU. invest, directly or indirectly, in a diversified number of by means of non-distressed (secured or unsecured) debt transactions (in any form, including loans, bonds, leasing and receivable financing). Direct cash investment in DDFs. The risk arising from the direct investments into DDFs will be shared between the Pan-EU GF (first-loss provider) and the EIF (Senior DDFs are expected to be relatively throughout and particularly in 2021, with important market opportunities arising because of: - Long term projects and M&As being suddenly re-prioritized by European SME and mid-caps; - timely delivered and tailor-made financing required, in order to deal with contingent business-specific needs; and