Credit Insurers And Their Overlooked Role In Corporate Restructurings

• Published date: 31 March 2024
• Law Firm: Norton Rose Fulbright
• Author: Mr Lorenz Scholtis

Trade credit insurances play a vital part in corporate finance in the German market. Yet the important role of credit insurers in restructuring scenarios is underestimated by many companies and their advisors. We examine what a trade credit insurance is and why it is important to keep insurers close in special situations.

German Mittelstand: Stakeholders in traditional corporate financings

It is often thought that stakeholder management in restructurings is all about shareholders, banks, funds and noteholders. This may largely be true of conventional financial restructurings of SPVs or BondCos. Many modern corporate financing structures and reorganisations focus on the lending-specific vehicles above the operating entities. Their complex structures and prevalence tend to draw the industry's attention and we are familiar with cases heavily steered by traditional lenders and professional investors, as recently seen in the restructurings of Vroon, Adler, ED&F Man and Aggregate.

Despite this, numerous production and trade focussed companies - particularly in the mid-market - rely on less sophisticated financing structures. In Germany, corporate finance typically consists of a larger volume syndicated credit facility, with a lower volume of current account facilities, multiple shareholder loans and in some cases corporate bonds or publicly subsidised loans. Other common financing methods include factoring and leasing. In Germany, large parts of the mid-market industrial and manufacturing companies (which are still considered the backbone of German economy - so-called Mittelstand) are financed using this structure. Often the parent or holding company - and in some cases even the operational entities - serve as borrowers. In a restructuring scenario, this commonly results in situations where there are far more stakeholders at the table than merely financial creditors. While the bank syndicates and noteholders remain the most active and demanding creditors, the involvement of public institutions which provided subsidised loans as well as the company's key suppliers frequently add layers of complexity to the stakeholder management process.

One stakeholder group which is often overlooked are the credit insurers. Not only do they play a significant role in the day-to-day business of producing and trading companies, in a financial distress scenario the inherent power of credit insurers can determine the success of the restructuring. Therefore, it is important to take...