€50 billion federal loan guarantee scheme

A €50 billion loan guarantee scheme of the Belgian federal government has received European Commission State aid approval. The published decision can be found here. 

The package adopted by the federal Government consists of two measures: i) a six-month standstill with respect to qualifying outstanding credit, which has been committed to by credit institutions; and ii) a State guarantee scheme for portfolios of qualifying loans to undertakings channelled through credit institutions to address businesses’ additional liquidity needs.

The second measure, the State guarantee, entails State aid and has been assessed by the European Commission. The first measure, i.e. the standstill by credit institutions, is a condition for the latter to be allowed to participate in the State guarantee scheme.

The support, in the form of State guarantees for new short-term loans, will be accessible to all companies, including small and medium-sized enterprises (SMEs) and self-employed traders. The aim of the scheme is to help businesses affected by the economic impact of the current crisis to cover their liquidity needs, thus ensuring the continuation of their activities.

The Temporary Framework for State aid in the COVID-19 outbreak provides for a template State guarantees for loans.

However the Belgian federal scheme is not fully in line with the template and was therefore assessed in extenso and approved under Article 107(3)(b) (TFEU), which relates to State aid measures to remedy a serious disturbance to the economy.

  • Aid under the measure may only apply to new, short term (maximum maturity 1 year) loans for investment and working capital that are granted in the period from 1 April 2020 to 30 September 2020;
  • All undertakings active in Belgium (including self-employed traders, SMEs and large companies), with the exception of undertakings in the financial sector and government entities, are eligible for the aid;
  • The aid is available only to undertakings that: i) had less than 30 days of bank payment arrears on 29 February 2020 or on that date were not the subject of a credit restructuring by their bank; and ii) were not in difficulty within the meaning of the GBER;
  • The loss distribution of the guaranteed amounts takes place at portfolio level and not at individual loan level (this is an important difference compared to the Temporary Framework). In the Belgian scheme, the credit institutions will fully incur a first loss corresponding to 3% of the principal amount of the reference portfolio, before losses are distributed between them and the State on a 50/50 basis for the loss portion between 3% and 5%, and on a 20/80 basis for the losses exceeding 5%.

An interesting point to note is that neither the Temporary Framework nor the European Commission decision on the federal loan guarantee scheme prohibits the distribution of dividends.

€3 billion Flemish loan guarantee scheme

The Flemish loan guarantee scheme was found to be in accordance with the loan scheme template of the Temporary Framework and was approved accordingly.

It is important to note that the Flemish measure is a second line instrument. It will be open to undertakings whose loans are not eligible for a guarantee under the forthcoming Belgian federal loan guarantee scheme:

  • All undertakings active in the Flemish region are eligible for the guarantee, with the exception of financial intermediaries;
  • The measure covers both working capital and investment loans;
  • The loans covered by the measure may be new loans or existing loans after they are restructured with the borrower’s consent. To be eligible for the guarantee, the financial intermediary must (with the borrower’s consent) adjust certain loan conditions;
  • The maturity of the loans is not limited under the measure. The term of the guarantee is limited to a maximum of six years;
  • Eligible undertakings may submit an application until the last date on which the guarantee can be granted, viz. 31 December 2020.

An interesting point to note is that neither the Temporary Framework nor the European Commission decision on the Flemish loan guarantee scheme prohibits the distribution of dividends.

Deferred payment of Walloon airports concession fees

Finally the European Commission has approved a support scheme for the Walloon airports. The scheme will be accessible to the operators of the Charleroi and Liege airports, and will allow them to defer payment of the concession fees that would in principle be due for the year 2020. 

The Commission found that the Walloon scheme is in line with the conditions set out in the Temporary Framework for deferred payments of taxes and fees. In particular, the payment deferral may only be granted until the end of this year and its term will not exceed six years. The payment deferral involves minimum remuneration in line with the Temporary Framework.

More Belgian State aid measures to follow

A myriad of State aid measures by other Member States has been approved either under the Temporary Framework, or ad hoc under Article 107(3)(b) TFEU (which relates to aid to remedy a serious disturbance to the economy). To a lesser extent, there have been decisions under Article 107(2)b TFEU to compensate specific companies or specific sectors for the damage directly caused by exceptional occurrences, such as the coronavirus outbreak.

It is generally expected that more Belgian State aid measures will be notified and assessed by the European Commission, whether ad hoc or on the basis of the Temporary Framework.

It is also possible that the European Commission may issue Covid-19-specific Guidelines on Rescue and Restructuring aid or an expedited review of capital injections under State aid rules.

Finally, it is also expected that Member States, including Belgium, will continue to provide support which is available to all undertakings (without selectivity) and which therefore does not constitute State aid. This relates to general measures for the whole economy of a Member State such as wage subsidies, suspension of payments of corporate and value added taxes or social contributions, or support directly granted to consumers.