German BaFin Permits Origination, Restructuring and Prolongation of Loans to German Borrowers by Certain Funds without a Banking Licence

A major topic in domestic and international transactions that involve German borrowers is whether or not the grant of a new loan or the restructuring or prolongation of existing loans in the context of such transaction by financial investors requires a German banking licence.

It is the existing administrative practice of the German regulator BaFin that the acquisition of existing loans (Loan Trades) and implementing decisions in accordance with the terms of the underlying loan agreements does not require a German banking licence.  However, the general administrative approach of BaFin on the restructuring and prolongation of existing loans as well as the granting of new loans used to be that this requires a German banking licence (subject to certain rather narrow exceptions, e.g. in cross border lending).

In a recent letter, BaFin has now declared a change in this administrative approach going forward for certain alternative investment funds (“AIF”), particularly those that qualify as special alternative investment funds (“Special AIFs”), and that are managed in accordance with the German Investment Code (that implements the European AIFM-Directive into German law). Thus, for lending activities that involve German borrowers and form part of the collective portfolio management of an AIF, a German banking licence is not required. From a German perspective, this particularly applies to Special AIFs, i.e. AIFs the investors of which are limited to professional and semi-professional investors.

Although not explicitly stated in BaFin’s letter, not only German lending structures, but also EU lending structures and even non-EU lending structures may benefit from this change of administrative practice.