Germany: Boom Times for Bad Debt

By Markus Federle, for Legal Week

A combination of factors has removed German corporates’ historically easy corporate access to cheap finance, while its banks are plagued by mountains of bad debt. Markus Federle reports on the current boom of investments in the country’s distressed assets.

Not too long ago, the notion of a distressed investor doing business in Germany was considered absurd. The German economy ? often described as ‘Deutschland AG’ ? was perceived by international investors as a close-knit network of German corporates and banks that neither appeared in need of, nor welcomed, foreign capital.

It was easy for German corporates to get cheap financing: a call to the Hausbank or the local Sparkasse and money was provided smoothly at standard interest rates no matter what, not too many questions asked. It was a self-contained, but nevertheless powerful and stable organism, which outside investors found difficult, if not impossible, to penetrate.

It is no secret that these times are definitely over. Not a week goes by in Germany without news of large, native companies experiencing financial difficulties, undergoing restructurings or even filing for insolvency ? Agfa and VDN being the most recent examples.

On the flip side of these corporate failures (and often less public), German banks are plagued by a mountain of bad debt which burdens their balance sheets and inhibits their ability to undertake new investments. This fatal combination has attracted the interest of globally operating opportunity funds and has made Germany the number one country for distressed investments in Europe, if not worldwide.

For this complete story, please visit Germany: Boom times for bust assets.