LBBW LRS MID-CAP SUPPORT

Promoter – Financial Intermediary

LANDESBANK BADEN-WUERTTEMBERG

Location

• Germany

Description

Operation, with a 20% Climate Action & Environmental Sustainability (CAES) window, supporting mid-caps and public sector entities in Germany in sectors that are in line with the EIB's long-term mission.

Additionality and Impact

The proposed Linked Risk Sharing operation is designed to provide support to Final Beneficiaries such as Mid-Caps and Public Sector Entities (PSEs) in Germany and potentially other EU Member States. The counterparty is a well-established financial player in the target market.

The operation addresses the underlying market failure in access to finance faced by Final Beneficiaries due to information asymmetries and credit considerations on the side of the Financial Intermediaries. Given the economic uncertainty exacerbated by elevated interest rates and core inflation, muted domestic consumption, energy security constraints and war in Europe's vicinity, the proposed risk sharing operation may alleviate some of the pressures faced by the real economy. Specifically, the operation will support social objectives such as employment via the provision of eligible transactions such as loans for working capital and investment purposes to Mid-Caps and PSEs. Moreover, the projects will contribute to the reduction in carbon and air pollution, improving the energy markets and general market efficiency and integration through participation in the wholesale markets.

The guarantee may alleviate capital and credit related concerns of the Financial Intermediary and thereby free up additional lending capacity. The operation is expected to carry a signalling effect, thereby crowding in other parties. The product is not readily available on markets and an alternative means to promoting lending to the real economy compared to other promotional schemes available.

The financing of this project contributes towards the Bank's lending priority objectives on Energy (Renewable Energy and Energy Efficiency) with a 20% contribution on Climate Action and Environmental Sustainability (Climate Action) as transversal objectives. It concerns the financing of a series of small scale solar PV, Biogas, onshore wind as well as district heating infrastructure, energy efficiency and electricity distribution investments located in Germany and potentially other EU countries.

The implementation of renewable energy generation plants contributes to the EIB's priority of supporting the transition to a low-carbon, environmentally friendly and climate-resilient economy. The operation will also contribute to 2030 decarbonisaton targets set out in the NECPs for Germany and other Member States, and the REPowerEU Action Plan. By using an intermediated approach, the Bank will be able to support smaller projects, that would otherwise not be possible to be reached directly.

The individual projects are expected to have a good economic return, considering the economic value of the electricity generated. The projects are expected to lead to a broader social benefit. EIB is providing capital relief, thereby contributing to financing in terms of pricing and longer maturities. It is also expected that the crowding in effects will further amplify the EIB's impact and outreach.

Objectives

The project consists of an unfunded risk participation scheme under a full delegation approach by which the EIB will cover up to 50% of the losses with respect to each defaulted loan of a portfolio of loans to mid-caps. Access to finance remains constrained for the time being as a result of the economic uncertainty exacerbated by the war in Ukraine, supply chain bottlenecks, energy security contributing to an economic downturn. A pressing constraint for financial intermediaries is lending capacity, particularly as the unfolding economic downturn may 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 financing to mid-cap companies.

Sector(s)

• Credit lines - Credit lines

Proposed EIB finance (Approximate amount)

EUR 200 million

Total cost (Approximate amount)

EUR 560 million

Environmental aspects

Final beneficiaries will be requested to comply with applicable national and EU legislation, as appropriate.

Procurement

Final beneficiaries will be requested to comply with applicable national and EU legislation, as appropriate.

Status

Signed - 20/12/2024