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We took this as an opportunity and entered into direct contact with our renowned cooperation partner Gleiss Lutz Rechtsanwälte.
Partner I Attorney Dr. Helge Kortz answered our questions about the synergies between Gleiss Lutz and finpair, the development of future contract documentation, also with regard to the integration of ESG components and their impact.
With our many years of experience, my colleagues and I are available to Finpair in negotiating contracts as part of legal advice. Together, we created a Schuldschein loan contract basis a few years ago, which is based on market standards and is constantly being developed. This agreement is aimed at companies from all sectors and is already prepared to include ESG components should there be a need for this.
If an issuer makes use of this agreement to place its issue, after taking into account the individual needs of the company, a draft contract is created which results in very broad acceptance among invited investors. Acceptance in the market proves the good joint work.
Thanks to Finpairs's close connection with the platform's investors, the needs of investors are immediately registered. In this way, investors naturally also influence the continuous development of the contractual basis. The objective for drafting any contract documentation is clear: The interests of all parties — the debtor and creditors — are brought together quickly and effectively.
Right from the start, we were fascinated by being able to support the development of a Schuldschein loan platform such as Finpair.
The innovative approach, the flexibility in terms of documentation and the speed of implementation are an interesting and successful concept. The close cooperation with the highly motivated FinPair team and the successful implementation of a wide range of transactions are a great incentive for us.
The significant changes in the Schuldschein loan documentation in the last 12-24 months relate to the rules for determining the interest rate in the event of unavailability or loss of EURIBOR. The aim is to include a manageable regulation in the documentation that meets the interests of both sides and at the same time does not shift the uncertainties of setting an interest rate to the paying agent. The reliance on reference banks to determine the reference interest rate, which is still contained in a large number of older documentation, has almost disappeared.
More and more, a so-called “make whole clause” is being included in Schuldschein loan documentation. The “make whole clause” known from the bond market allows the borrower to repay fixed-interest Schuldschein loan loans early at any time against payment of the so-called “make whole amount”, which is ultimately based on an early repayment penalty. This gives the borrower more leeway, but at the same time provides the Schuldschein loan creditor with appropriate compensation in the event of early repayment.
The LMA model Schuldschein loan contract has entered the Schuldschein loan market. However, the established documentation of the respective arrangers still prevails.
So far, regulations on anti-money laundering, anti-corruption and sanctions have only been included in the documentation in isolated cases. Whether this will change in the near future, also as a result of current political developments, remains to be seen.
Due to the liquidity available in the market, more and more investors are looking for investment opportunities with long terms. In view of the statutory termination regulations, terms of more than 10 years are offered as registered bonds for Schuldschein loan issues.
In accordance with Section 489 (1) No. 2 BGB, a fixed-interest loan can be terminated after 10 years without the obligation to pay an early repayment penalty. This right of termination cannot be waived by the parties in the case of a Schuldschein loan loan agreement.
However, this provision does not apply to registered bonds, meaning that longer terms with fixed interest rates can also be agreed without the investor having to fear early repayment without an early repayment penalty. The registered bonds issued as part of such a transaction are usually based on the Schuldschein loan documentation for the shorter terms, but this is adjusted to the requirements of a registered bond.
The issuance of a Schuldschein loan loan linked to ESG criteria, so-called KPIs (Key Performance Indicators), requires good preparation on the part of the borrower. It is first necessary to determine the relevant KPIs. The KPIs should be serious and demanding criteria. In any case, the impression of so-called greenwashing should be avoided. The next step should be to determine the number of KPIs. Whether there are one or more KPIs depends on the type of business carried out by the borrower and on the other hand on the ability of the borrower to implement them.
Failure to comply with KPIs does not result in a reason for termination, but has an impact on the margin to be paid. If the KPIs are not met, the margin increases; if the KPIs are met, the margin decreases. Once several KPIs have been defined, there are a variety of design options for how compliance or non-compliance affects the margin. The market currently sees a bandwidth for adjustment of between -5 bps to +5 bps.
Syndicated credit agreements also include so-called “rendez-vous” regulations. The borrower can then adjust the agreed KPIs at a specific point in time during the term or set them for the first time. If no agreement is reached on the adjustment, the ESG component may also be omitted altogether without affecting the remaining provisions of the contract. So far, such regulations have only been found very sporadically on the Schuldschein loan market. It remains to be seen whether this concept will find sustainable entry into the Schuldschein loan market.
