COVID-19: European Commission approves Belgian guarantee schemes

The European Commission has approved the first Belgian aid schemes notified since the beginning of the COVID-19 crisis.

On 9 April 2020, the Commission authorised a public guarantees scheme to support undertakings active in the Flemish region. The Flemish region has blocked a budget of EUR 3 billion for this guarantee scheme covering working capital and investment credits.

On 11 April 2020, the Commission approved the State guarantee scheme mobilising up to EUR 50 billion.

The measures adopted are designed to address the difficulties faced by many undertakings not only with regard to existing loans, but also to obtain additional credit to cover their liquidity needs. The schemes were approved under Temporary Framework for State aid measures adopted by the Commission on 19 March 2020 (as amended on 3 April 2020).

Note, however, that these schemes are non-cumulative and that the scheme set up by the Flemish Region is a second line instrument, which will come into play only if a guarantee cannot be granted at the federal level.

Who are the potential beneficiaries of the State guarantee scheme?

The beneficiaries of the federal measure are all undertakings active in Belgium, including self-employed traders, small and medium enterprises (“SMEs”) and large enterprises, except:

• undertakings that are part of the financial sector; and
• government entities, as defined in the Royal Decree related to the provision of a State guarantee to cover certain loans to counter the consequences of the COVID-19.

Aid may be granted to eligible undertakings that:

• had less than 30 days of bank payment arrears on 29 February 2020 or were not on that date already subject to credit restructuring by their bank; and
• were not in difficulty within the meaning of the General Block Exemption Regulation (“GBER”) on that same date. The GBER provides that an undertaking is in difficulty if it satisfies at least one of the following conditions:
  • in the case of a limited liability company: where more than half of its subscribed share capital has disappeared as a result of accumulated losses. This is the case when deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital;
  • in the case of a company where at least some members have unlimited liability for the debt of the company: where more than half of its capital as shown in the company accounts has disappeared as a result of accumulated losses.
  • where the undertaking is subject to collective insolvency proceedings or fulfils the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors;
  • where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan.
  • in the case of an undertaking that is not an SME, where, for the past two years: the undertaking’s book debt to equity ratio has been greater than 7.5 and the undertaking’s EBITDA interest coverage ratio has been below 1.0.

What are the terms of the State guarantee scheme?

The State guarantee scheme consists of two measures:

• a six-month standstill which has been committed to by credit institutions with respect to qualifying outstanding credit; and
• a State guarantee scheme on portfolios of qualifying loans to undertakings channelled through credit institutions to address additional liquidity needs of businesses.

The measure assessed in this Decision concerns only the State guarantee scheme on portfolios of qualifying loans. The standstill is a commitment by the financial sector relating to both business and private credit falling under the specific conditions set out in a charter agreed by the credit institution.

Under the measure the loan guarantee scheme is channelled through credit institutions. The lenders have to be authorised under Belgian law and had on 31 December 2019 outstanding credit of a least EUR 20,000 (principal) with respect to one or more final (business) beneficiaries.

To be eligible, loans must meet the following conditions:

• be new loans, which are contracted by credit institutions and eligible undertakings over the period from 1 April 2020 to 30 September 2020;
• be investment or working capital loans; and
• have a maximum maturity of one year.

The maximum amount of the qualifying loans is defined as the lower of:

• EUR 50 million; or
• the borrower’s liquidity needs for its activities during maximum 12 months for large enterprises or 18 months for SMEs and self-employed traders.

The threshold of EUR 50 million can be increased subject to written and prior approval by the Belgian State, but remains subject to the cap of the borrower’s liquidity needs.

The scheme places a significant part of the risk of the guaranteed loans on the banks by providing that the banks will be the first to cover losses incurred in the guaranteed loan portfolios, while the State guarantee will cover only residual losses.

In order to ensure that the guarantee is only used when a sufficient amount of losses has been reached, the maximum amount of the State guarantee is equal to:

• 0% for the first 3% of losses;
• 50% for the following 2% of losses;
• 80% for the remaining losses.

The guarantee premium to be paid will depend on the size of the beneficiary undertaking:

• for SMEs with a one year maturity: 25 basis points;
• for large enterprises with a one year maturity: 50 basis points.

These guarantee premiums are reduced proportionately where the loan maturity is less than a year.

Who are the potential beneficiaries guarantee scheme of the Flemish Region?

The final beneficiaries of the measure are all undertakings active in the Flemish region, with the exception of financial intermediaries.

The aid may be granted under the measure only to undertakings that were not in difficulty within the meaning of the GBER (see above), the Agricultural Block Exemption Regulation or the Fisheries Block Exemption Regulation on 31 December 2019.

Note that the measure is only open to undertakings that do not benefit from a State guarantee for the bank financing concerned.

What are the terms of the guarantee scheme of the Flemish Region?

The measure covers both working capital and investment loans.

Under the measure the aid is channelled through credit institutions and other financial institutions.

The eligible loans are:

• new loans or
• existing loans after restructuring with the consent of the borrower. The financial intermediary will then have to adjust the conditions applicable to the loan by granting, for instance, longer maturities, lower interest rates or lower collateral.

The overall amount of loans, with a maturity beyond 31 December 2020, shall not exceed:

• double the annual wage bill of the beneficiary (including social charges as well as the cost of personnel working on the undertaking’s site but formally in the payroll of subcontractors) for 2019, or for the last year available. In the case of undertakings created on or after 1 January 2019, the maximum loan must not exceed the estimated annual wage bill for the first two years in operation; or
• 25% of the beneficiary’s total turnover in 2019; or
• with appropriate justification, the amount of the loan may be increased to cover the liquidity needs from the moment of granting for the coming12 months for large enterprises and 18 months for SMEs.

For loans with a maturity until 31 December 2020, the amount of the loan principal may be higher with appropriate justification and provided that the proportionality of the aid remains assured.

The guarantee coverage shall not exceed 80% of the loan principal. Losses will be borne proportionally by the financial intermediaries and Gigarant. The amount of the guarantee will decrease proportionally to the decrease of the loan.

The guarantee premium to be paid will depend on the maturity of the underlying eligible credit instrument and the size of the undertaking:

• for SMEs: 25 basis points (for the 1st year); 50 basis points (for the 2nd-3rd year); and 100 basis points (for the 4th-6th years).
• for Large Enterprises: 50 basis points (for the 1st year); 100 basis points (for the 2nd-3rd year); and 200 basis points (for the 4th-6th years).

The measure also provides safeguards regarding possible indirect support to credit or other financial institutions in order to ensure competition between financial intermediaries.

What elements were taken into account by the Commission for the authorisation of the guarantee schemes?

The Commission considered that the measures were in line with the conditions set out in the Temporary Framework (see our article of 7 April 2020 on the Temporary Framework). The Commission took the following elements into account for each notified Belgian scheme:

The Commission therefore concluded that the measures are necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework.

It is now up to the financial institutions to analyse the applications submitted by undertakings and to request a guarantee from the State or the Flemish Region.

More information on the measures taken in Belgium and other jurisdictions of the European Union can be found in our CMS Expert Guide to State Aid During Coronavirus Crisis.