BERENBERG EGF ENHANCED SUPPORT

Operation under the European Guarantee Fund (EGF) to support mid-caps in sectors affected by the COVID-19 pandemic and that are in line with the EIB's long-term mission in Germany and other EGF participating Member States. Moreover, Berenberg will aim to build an additional portfolio including small and medium-sized enterprises (SMEs) that matches the size of the guarantee.

The project consists of an unfunded risk participation scheme under a full delegation approach by which the EIB will cover up to 75% of the losses with respect to each defaulted loan of a portfolio of an estimated 20 to 25 mid-cap loans. While access to finance had somewhat improved since the financial crisis, it has become a critical issue again as a result of the COVID-19 crisis, due to both rapid demand and rising constraints on the side of intermediary banks. These constraints are idiosyncratic and only partly addressed, e.g. through measures of the ECB, which is providing unprecedented amounts of liquidity support in euro-area countries. A pressing constraint for financial intermediaries is lending capacity, particularly as the economic crisis will lead to substantial downgrades in their existing lending books and corresponding increases in their minimum capital requirements. This leads to a vicious circle of a procyclical shift of remaining lending capacity into "lower-risk" assets, which was a main contributor to the last financial crisis. Therefore, the objective of the operation is to provide liquidity and financing for projects to mid-cap companies.

This Linked risk sharing instrument under the Pan-European Guarantee Fund (EGF) is designed to provide support to mid-caps and less directly to SMEs, to foster access to liquidity in the short-term and economic recovery in the long term. The operation addresses the underlying market failure in access to finance faced by mid-caps and SMEs due to information asymmetries, which have been exacerbated by COVID-19. Specifically, the operation will support social goals such as employment via the provision of Revolving Credit Facilities to mid-caps for working capital and general finance and liquidity needs. SMEs will benefit through the provision of liquidity enabled by the capital relief of the EGF guarantee. The intermediary, Berenberg, is an established player in the target market and a first-time client of the EIB. The EIB contribution rests on introducing a new product in the target market, and it is foreseen that this intervention will crowd in additional financing from Berenberg under the Additional Portfolio that it is asked to generate as part of the contractual requirements and possibly from commercial FIs. As a first time client, Berenberg will also receive technical advice on the underlying projects to be financed.

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