One Square is the specialist and market leader for the restructuring of promissory notes (“Schuldscheindarlehen”).
The Schuldscheindarlehen market in Germany is one of the largest financing markets with a volume of over €250 billion and annual new issues of €20 to 30 billion. A promissory note loan is not a capital markets instrument, but a bilateral loan agreement as defined by section 488 of the German Civil Code (BGB) based on joint documentation. The promissory notes are mostly unsecured and without covenants. The promissory note contract itself is highly standardised and kept simple. The denomination is usually €500,000, which is why it is mainly institutional investors such as commercial banks, Landesbanken, Volks- & Sparkassenbanken, insurance companies and the like who subscribe to promissory notes.
Due to this structure, promissory notesare a “fair weather instrument” from a restructuring perspective. If adjustments to the terms and conditions of the promissory note (term, interest rate, etc.) are necessary, this can only be done unanimously due to the nature of the promissory note as a bilateral credit relationship. This causes considerable problems in the event of a necessary restructuring of the liabilities side, as unanimity can rarely be achieved. There are almost always individual promissory note creditors, usually with small volumes, who adopt a refusal attitude and hope for redemption.
This problem is exacerbated against the backdrop of the tradability of the promissory note. We regularly see hedge funds and distressed investors buying into the capital structure on the secondary market via the promissory notes. These investors usually pursue different objectives from the primary lenders and consistently use this strong position. The entry of these investors further complicates the heterogeneous investor base and makes it difficult not only to communicate and form a uniform opinion, but above all to find constructive solutions in the interest of all parties involved.
One Square has by far the most experience in managing large, heterogeneous and complex creditor groups such as promissory note creditors and bondholders. In many cases, we have proven that, on the one hand, we consistently defend the interests of the creditor groups we represent, but on the other hand, we always seek compromises that are acceptable to all sides and achieve consensual solutions.
Our services in detail:
- Advising and supporting promissory note issuers in the optimal integration of promissory note investors in the context of a financial restructuring (early preparation, intensive consistent communication, market transparency, trust)
- Bundling of communication via a common information platform, organisation of a unified representation of interests of key promissory note representatives and coordination of creditor strategy
- Support and representation of promissory note investors in the negotiation of a financial restructuring with management, other creditor classes, their respective advisors or other parties in general
- Assessing the economic impact of the various scenarios and options, including any M&A processes or otherwise, and together with the various other advisors to the issuers and Schuldschein investors
With the introduction of the so-called StaRUG ( Act on the Stabilisation and Restructuring Framework for Businesses) on January 1, 2021, however, a possibility was created to restructure financial liabilities with majority decisions (75%) even outside of insolvency and thus to force investors who hold small positions and abuse their blocking minority into constructive solutions in a legally binding way. Further details can be found under the StaRUG tab.
Our typical clients are issuers of promissory notes who need to adjust their capital structure.