Companies Eyeing Sales Surge Shake Off State Loan Shackles

Large European companies are casting off the constraints that came with the government-backed loans they raised to weather the pandemic by lining up new funds with fewer strings attached.

Sixt SE, the German car hire firm, last week replaced the loan provided in May last year by state lender KfW with 750 million euros ($895 million) of long-term financing from banks.

As a condition of the original deal, Sixt had to agree to largely refrain from paying dividends over the life of up to two years of its loan. Other firms that have opted to repay state funding support include sports apparel makers Adidas AG and Puma SE.

Companies Eyeing Sales Surge Shake Off State Loan Shackles

Companies are positioning themselves for a surge in business as vaccination programs across Europe start to pick up pace, potentially unleashing a wave of pent-up consumer demand for vacations, cars and consumer goods. As part of those preparations, more companies are opting to free themselves from restrictions such as curbs on investments or shareholder payouts that were part of the price of tapping state support.

“Our new syndicated loan has now made it possible to replace the transitional loan with more long-term financing on more attractive terms without KfW’s involvement,” a spokesperson for Sixt said in comments sent by email.

Large European companies have raised more than 50 billion euros of loans since March 2020 backed by government guarantees or with support from state-owned lenders. Airlines are the biggest borrowers, led by Air France-KLM, which accepted 6.4 billion euros of funding with Dutch and French state backing.

Resuming Payouts

Adidas is already planning to resume dividends this year after repaying a 3 billion-euro loan provided by KfW at the end of last year. Puma, which also returned its state-backed funding, said it will pay out a dividend for 2020 after canceling distributions to shareholders last year.

“Puma chose to cancel the (state-backed) facility, as it was more expensive than the credit facilities that we replaced it with,” said a spokesperson in an emailed response to Bloomberg News. “In addition it was more restrictive in relation to possible dividend payments or share buybacks.”

Pent-up demand should drive a surge in spending on items such as cars, holidays and consumer goods, according to a report this month by financial analytics firm Credit Benchmark.

Replacing or converting state-backed loans can help borrowers regain “full entrepreneurial control,” said Reinhard Haas, head of syndicated finance with Commerzbank AG in Frankfurt.

The main driver to replace government funding “is to regain funding independence and strategic freedom,” said Cedric Perlewitz, head of automotive & transport with the bank. “We observe a preference to put permanent funding solutions in place,” he said.

Click here for a worksheet of pandemic-driven bank loans

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