Companies in the Corona crisis: In search of liquidity
From medium-sized firms to DAX corporations: In the current crisis, the main concern for German companies is to ensure liquidity. The government in Berlin wants to regulate this by means of new loans. But there are other ways in which companies could obtain fresh money.
The figure is alarming: according to a member survey by the German Association for Small and Medium-Sized Businesses (BVMW), currently one in two medium-sized companies in Germany is threatened with bankruptcy if the shutdown as a result of the corona crisis continues for another month. Federal Minister of Economics Peter Altmaier (CDU) wants to save the companies under all circumstances: «Medium-sized businesses account for 99.5 percent of all companies in Germany, 60 percent of all jobs and 80 percent of all apprenticeships,» he says.
Back in March, the German government had already decided on emergency aid for the local companies. At that time, there was talk of an «unlimited credit program». Unfortunately, the loans secured by the KfW with up to 90 percent collateral often did not reach the affected companies. The reasons: a high level of bureaucracy. And the house banks have too often hesitated to grant loans because they often found that the applicants in the crisis – no wonder – had a poor credit rating.
No risk assessment
Now there is fresh money: last week another aid programme for companies with at least ten employees was launched. The credit limit is 800,000 euros per borrower, with the state bearing the entire credit risk. «By applying to the main bank without further risk assessment, the aid reaches the companies quickly and thus helps to alleviate the severe effects of the Corona pandemic,» assures Günther Bräunig, Chairman of KfW’s Board of Managing Directors. Whether or not this will happen remains to be seen.
Debitos Managing Director Peter Riedel already doubted the sense of the KfW loans a few weeks ago: «The question may be asked whether it would not have been generally more sensible in this emergency situation to rely on unbureaucratic state subsidies and equity capital support instead of expensive and often risky loans and tax concessions,» he already wrote at the end of March in a column on the Corona crisis. Mario Ohoven, President of the German Mittelstand, is now singing the same tune: «Further loans would increase the debt burden and only delay the threat of insolvency.
The fact is that the CFOs of German companies are desperately looking for liquidity – even those of large corporations. «They are entering into new syndicated loans or increasing existing lines of credit to arm themselves for the consequences of the Corona crisis. The uncertainty as to whether the existing cash cushion will suffice is huge,» writes editor Desiree Backhaus of the CFO news portal DerTreasurer. Rewe has just obtained a new loan of one billion euros. Daimler and Airbus have now also found new money.
83 billion in insolvency claims
In addition to taking out new loans, Peter Riedel sees another possibility for German companies to obtain fresh capital: «In Germany there is still a significant amount of insolvency claims that are lying dormant in the balance sheets of many companies and financial institutions – and which could be raised in times of crisis,» explains the business lawyer. According to an analysis by Creditreform, between 2015 and 2019 creditors’ claims have accumulated to the tune of more than 83 billion euros in Germany alone.
Riedel is certain that a large part of this sum is still on the books of German companies. «The average duration of insolvencies is five years. And the major proceedings can take ten years or more,» says the Head of Illiquid Products at Debitos GmbH. And a sale of an insolvency claim via a secondary market such as Debitos could be settled within a few weeks. The demand exists: Financial investors are particularly interested in insolvency claims in times of crisis.