New report explains how a hybrid recapitalisation instrument could work to finance recovery of smaller corporates in EU | AFME

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New report explains how a hybrid recapitalisation instrument could work to finance recovery of smaller corporates in EU
18 Nov 2021
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The Association for Financial Markets in Europe (AFME), with support from PwC and Linklaters, has today published a new report, which provides a practical guide for European authorities and Member States looking to introduce a new hybrid recapitalisation instrument that could help provide funding for smaller corporates post-Covid.  

The report, “Introducing a New Hybrid Recapitalisation Instrument for Smaller EU Corporates” builds on an earlier January report which examined the recapitalisation needs of smaller EU hybrid equity instrument could enable a greater number of SMEs to gain access to equity-like funding without relinquishing control of their organisation corporates following the pandemic and found that a  – one of their chief concerns.  

However, such a solution needs to be tailored to the local accounting, legal framework, and tax and insolvency treatment in individual EU Member States, to achieve the key attributes necessary for creating an instrument which meets the needs of both investors and corporate issuers.  

Existing domestic frameworks in Germany, France, Italy, Spain and the Netherlands are presented as  examples which officials in other Member States can refer to in developing structures which work in their own countries and preferably at EU-wide level.  

Adam Farkas, Chief Executive of AFME, said: “As economic conditions gradually improve, it is vital that smaller unlisted companies and midcaps in the EU with the potential to drive economic growth have access 

to ample fresh capital to invest in innovation and their future growth. Alternative types and sources of funding will be required to meet this challenge.  

“While some EU Member States – including France, Spain and the Netherlands – have recently launched national debt-focused schemes and instruments to support company recapitalisation, AFME continues to see significant value in the development of an EU-wide recapitalisation instrument framework that could be rolled out across various Member States.” 

The report presents the following analysis: 

  • An overview of the key hybrid instrument attributes required to achieve the desired equity accounting, tax deductibility and insolvency treatment.  

  • A summary of state aid considerations that are likely to be taken into account in assessing the introduction of such equity-accounted hybrid instruments for the purposes of compliance with EU state aid requirements. 

  • A generic sample term sheet outlining the proposed instrument features which can be used as a reference for discussion with officials, investors and mid-cap/SME corporate issuers. 

AFME believes the report will provide a useful reference for policy makers and key stakeholders in order to bring the idea of a new hybrid instrument for SMEs to reality and that officials, corporates and investors can continue to work together to design solutions adjusted to the needs of companies seeking investment capital in the phase of economic recovery. 


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This report follows AFME’s January 2021 report, which estimated that Europe could face a funding gap of €450-600bn in equity and hybrid capital to prevent business defaults with the gradual reduction of state support measures.  


Rebecca Hansford

Head of Communications and Marketing