COVID-19 – Bavaria Fund - McDermott Will & Emery

COVID-19 – Bavaria Fund

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In addition to the Economic Stabilization Fund (Wirtschaftsstabilisierungsfonds; “WSF“; see the summary by McDermott (German only)), which was established by the German federal legislator, the Bavarian legislator has decided to establish a Bavaria Fund (BayernFonds) to help stabilize companies in the Federal State of Bavaria. The law on the Bavaria Fund and the Bavarian Finance Agency (BayernFonds- und Finanzagentur-Gesetz; “BayFoG”) was announced in the Bavarian Law and Ordinance Gazette on 30 April 2020 and came into force on 1 May 2020.

The Bavaria Fund has no legal capacity and is managed by the Bavarian Finance Agency GmbH (Bayerische Finanzagentur GmbH), whose sole shareholder is the Federal State of Bavaria.

In Depth


The purpose of the Bavaria Fund is to avert or mitigate the economic damages that have already occurred and are still to be expected to occur as a result of the COVID-19 pandemic and to stabilize the affected companies. The Bavaria Fund is intended for companies where their endangerment of existence would have a significant impact on the economy, technological or economic sovereignty, security of supply, critical infrastructure or the labour market in Bavaria. Stabilization is to be achieved by overcoming liquidity bottlenecks and creating the framework for a strengthening of the capital base.


Eligible to apply are companies from the private sector (listed and unlisted) whose registered office or main focus of activity is in Bavaria, and who met at least two of the following three criteria in the last complete financial year before 1 January 2020:

  • a balance sheet total of more than EUR 10 million
  • more than EUR 10 million in revenue;
  • at least 50 employees;

as well as start-ups which, regardless of the above-mentioned thresholds, have been valued by private investors in at least one completed financing round since 1 January 2017 with an enterprise value of at least EUR 5 million including the capital raised by this round. Therefore the requirements for eligibility to apply for the Bavaria Fund are lower than those for the WSF, which caters for a stabilization of medium-sized companies as well.

The following companies are excluded from support:

  • financial sector companies;
  • credit institutions or bridge institutions; and
  • companies which have been granted stabilization by the WSF.

According to the explanatory memorandum to the BayFoG, companies which have been granted stabilization by the WSF do not meet the application requirements for companies from the private sector. Thus, according to the wording of the law, such companies are excluded from (additional) stabilization measures by the Bavaria Fund. Apart from that, according to the explanatory memorandum of the BayFoG, the decision on the granting of a stabilization measure is subject to the consideration by the competent ministries in the Federal State of Bavaria, taking into account the principle of economical and effective use of funds as well as possible or applied for stabilization measures by the WSF or other measures of other federal states. As a result, recapitalizations with the participation of both the WSF and the Bavaria Fund should be possible.


Stabilization measures by the Bavaria Fund are in general possible until 31 December 2021. In order to ensure a consistent application of the special provisions in all stabilization cases at federal and state level and to achieve an effective impact of the stabilization measures, the modifications to company law under the Economic Stabilization Acceleration Act apply accordingly to the Bavaria Fund.

Assumption of guarantees

The Bavaria Fund is authorized to assume guarantees of up to EUR 26 billion for debt instruments and justified liabilities of companies issued between the entry into force of BayFoG and 31 December 2021 in order to eliminate liquidity bottlenecks and to support refinancing on the capital market.

The maturity of the guarantees and the liabilities to be secured must not exceed 60 months. An appropriate compensation must be paid for the assumption of guarantees.

More detailed provisions on the nature of the guarantee, the risks to be covered, the calculation and imputation of guarantee amounts, the compensation or other conditions of the guarantee, limits on the amount guaranteed as well as other conditions and obligations to ensure the purpose will be laid out by a ministerial directive.


As a second possible stabilization measure, the Bavaria Fund can also participate in the recapitalization of companies. This can be realized by (1) acquiring subordinated debt, hybrid bonds, profit participation rights, silent partnerships or convertible bonds, (2) acquiring shares or (3) taking over other equity components if this is necessary to stabilize the company. In any case an appropriate compensation for the recapitalization must be agreed upon.

However, the Bavaria Fund should only participate in a recapitalization measure if and to the extent that the Federal State of Bavaria has an important interest in the stabilization of the company and if the purpose intended by the Federal State of Bavaria cannot be achieved by other means just as well or better.

More detailed provisions on the compensation and other provisions of the recapitalization, the limits on the participation, the conditions under which the Bavaria Fund must exit its investments and other conditions necessary to ensure the purpose will be laid out by a ministerial directive.

The Bavaria Fund was granted a credit authorization of up to EUR 20 billion and the volume of the recapitalization measures therefore comprises a maximum of EUR 20 billion.


The following conditions must be met for the granting of stabilization measures:

  • The company must not have access to other forms of financing.
  • The stabilization measures must provide for an independent continuation perspective after the COVID-19 pandemic has been overcome.
  • The company must not have met the EU definition of a company in difficulty on 31 December 2020.

More detailed provisions will be laid-out by a ministerial directive concerning the requirements to be met by the applicant as regards (1) the use of the funds, (2) the taking out of further loans, (3) the remuneration of the management, (4) the payment of dividends, (5) the period during which these requirements must be met, (6) measures to avoid distortion of competition, (7) industry-specific restructuring obligations, (8) the manner in which accountability is to be provided, (9) a commitment to comply with the requirements set out in numbers 1-6, to be made by the authorized representative body, and (10) any other conditions or obligations that are appropriate to ensure that the objectives are met.


The stabilization measures of the Bavaria Fund constitute state aid and must therefore be approved by the European Commission. This approval is still pending, but it is expected to be granted soon. Subsequently, measures granted by the Bavaria Fund no longer have to be approved on an individual basis by the European Commission. As a result of the amendments to the Temporary Framework for state investments in the Coronavirus crisis adopted by the European Commission on May 8, 2020, this will not apply to recapitalization measures exceeding the threshold of EUR 250 million, which still require an individual notification to the European Commission.


Applications for stabilization measures by the Bavaria Fund must be submitted via the State Ministry of Economics, State Development and Energy. The State Ministry of Economics, State Development and Energy, in agreement with the State Ministry of Finance and for the Homeland, decides on the stabilization measures to be taken after due consideration of (1) the importance of the company for the business location of Bavaria, (2) the urgency, (3) the effects on the labour market, competition, technological or economic sovereignty, security of supply and critical infrastructures in Bavaria, as well as (4) the principle of using the Fund’s resources as economically and efficiently as possible.

The responsibility for the receipt and processing of applications, as well as for the decision on the granting of stabilization measures, can be transferred to the Bavarian Finance Agency GmbH by legislative decree.