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EIB Pan-European Guarantee Fund

AUTHORs: Turlough Galvin Services: Finance and Capital Markets DATE: 03/06/2020

Pan-European Guarantee Fund (“EGF”)
The Board of the European Investment Bank (“EIB”) agreed on 26 May 2020 on the structure and business approach of the new €25 billion EGF to combat the economic consequences of the COVID-19 pandemic.

The fund will enable the EIB Group to increase its support for European companies - mostly small and medium-sized companies (“SMEs”). The EGF was endorsed by the European Council on 23 April 2020 as part of the overall EU Covid-19 response package.

The EIB Group, including the European Investment Fund (“EIF”), will work through financial intermediaries in the Member States and in partnership with national promotional institutions. The involvement of the EIB means that businesses in all Member States will benefit from its top-level credit rating.

The EGF will provide guarantees to the EIB and EIF to reimburse any possible losses incurred for included operations. By pooling credit risk across all of the European Union, the overall average cost of the fund will be significantly reduced, compared to national schemes.

Member State Contributions
All 27 EU Member States have been invited to contribute to the EGF pro rata to their share of EIB capital. The Fund will become operational as soon as Member States accounting for at least 60% of EIB capital have signed their contribution agreements and a Contributors Committee has been set up. The Contributors Committee will decide on the use of guarantees and EIB Group rules will apply for all EGF operations.

Member State contributions to the EGF will take the form of irrevocable, unconditional and first demand guarantees and may include an upfront payment. Such guarantees will cover losses incurred in the operations supported by the EGF. Any losses will be borne pro rata by the participating Member States. The fund will initially approve operations until the end of 2021, but this period can be extended if approved by the contributors.

Once the funds are available, companies can file requests with the participating banks and intermediaries, a list of which will appear on the EIB website.

A majority of the funding will likely be requested by companies in the hardest-hit Member States and most heavily affected sectors. Concentration ceilings and floors for the three largest and fifteen countries least benefiting from the EGF’s activity will apply, thus providing for a balance in the allocations.

The EGF will provide finance to companies that are viable in the long-term, but struggling in the current crisis. At least 65% of the financing is earmarked for SMEs. A maximum of 23% will go to companies with 250 or more employees, with restrictions applying to larger companies with more than 3,000 staff. A maximum of 5% of the financing can go to public sector companies and entities active in the area of health or health-research or providing essential services related to the health crisis. Another 7% of EGF-supported financing can be allocated to venture and growth capital and venture debt in support of SMEs and midcaps.

The EGF Package
The EGF financing package includes the following:

  • Dedicated guarantee schemes based on existing programmes for immediate deployment. A €1 billion guarantee tranche will mobilise up to €8 billion of SME financing;
  • Dedicated liquidity lines to banks to ensure additional working capital support for SMEs and mid-caps of €10 billion;
  • Dedicated asset-backed securities (ABS) purchasing programmes to allow banks to transfer risk on portfolios of SME loans, mobilising another €10 billion of support.

The EIB Group is also implementing the emergency measures announced in March to repurpose existing guarantees and support companies in the EU to overcome the consequences of the crisis. The first measure, launched by the EIF on 6 April, offers dedicated EU-supported guarantees to contain the impact of the pandemic, making available €8 billion of financing for SMEs and mid-caps across Europe.

For further information, please contact Turlough GalvinPatrick MolloyDonal O’DonovanDavid O’MahonyJoe BeashelRory McPhillipsStuart KennedyYvonne McWeeneyChristian DonaghAlan KeatingRichard Kelly or your usual Matheson contact.