Banking & Finance 2020

Banking & Finance 2020 covers 34 jurisdictions. The guide discusses the impact of COVID-19, the high-yield market, restrictions on foreign lenders granting loans or security, foreign currency exchange, debt buy-back, withholding tax, guarantees and security, bankruptcy and insolvency, and EHS laws.

Last Updated: October 05, 2020


Milbank LLP is a pre-eminent global law firm and has for over 150 years provided innovative legal solutions in many of the world’s largest, most complex, "first-ever" corporate transactions and disputes. Milbank’s clients are prominent multinational financial, industrial and commercial enterprises, governments, institutions and individuals.

It would not be overstating to say that 2020 has been one of the most eventful years in recent history, probably since the global financial crisis of 2008, in the European finance markets (particularly the leveraged finance market).

Previous uncertainty around the general European economic outlook and the impact of Brexit were entirely overshadowed by the worldwide COVID-19 pandemic which has had multiple ripple effects on the European financing markets. The majority of new M&A transactions went on “ice” in March and although there has been some “defrosting” post-lockdown, the pipeline remains thin. The primary syndicated loan markets and the high-yield bond markets remained firmly shut between March and June amid the general economic uncertainty and with investors focused on their existing portfolios – this led to an increase in alternative structures as borrowers sought alternative sources of liquidity during the shutdown (including the continued rise of direct lending). Interestingly, however, the markets, once they reopened, rebounded fairly quickly, with little to no impact on pricing or on the aggressive documentary terms sought by borrowers/sponsor earlier in the year.

Whilst parallels have therefore been drawn with 2008 (in both cases, primary leveraged loan activity collapsed), it is clear that the effects on the financing markets have not (as yet) been so severe – the bounce back has been fairly impressive and despite the market conditions we have not seen a particular swing in documentary terms in lenders’ favour.

An outline of some of the common themes and trends seen in 2020 (largely as a direct reaction to the COVID-19 pandemic) is set out below.

Leveraged Loans and High-Yield Bonds – Changes to Capital Structures and Terms

January 2020 saw an extremely busy start for both the leveraged loan and high-yield bond markets, with new issuances and allocations significantly higher than in the same period in previous years (demand being driven by LBOs, dividend recapitalisations and refinancings). Documentation terms, driven by the excess liquidity, became even looser (with fairly little flex in this period). The shock of the COVID-19 pandemic and the “lockdown” imposed by multiple European countries however led to an equivalent “lockdown” of both the high-yield bond and leveraged loan market from mid-February (with syndications for deals that had been signed up already put on hold, and most underlying M&A and other transaction also put on hold for that period).

The high-yield bond market recovered first, with new primary issuances starting to emerge (largely for refinancing purposes) in April and May and continuing with June and July seeing further activity (some successful, some not); the syndicated loan market followed with green shoots in June (with syndications previously placed on hold now successfully allocated and new transactions including M&A/LBO activity starting to take place).

For large cap top tier sponsor M&A/LBO transactions, since the re-opening of the markets, we have been seeing a shift in the capital structures – any term loan B is now almost always accompanied by a high-yield bond; and some structures have also included a large amortising bank tranche, ie, a term loan A as well. The “convergence” in terms across European term loans, US term loans and high-yield bonds that we have been seeing in the last few years has thus continued to be a key area of focus for sponsors/borrowers (as they continue to seek to ensure that they have consistency of terms across all the products in their capital structure).

Surprisingly, what is clear is that the global, economic and sociological effects of the pandemic ultimately have had little effect on the pricing and/or terms of debt raised in the leveraged finance market (bank or bond) (certainly in the large cap/top tier sponsor space) – pricing is back to pre-COVID-19 levels, and the incurrence based covenants (a feature of the covenant-lite loans that now make up over 85% of new issuances in the leveraged finance market) remain extremely borrower/sponsor friendly. Sponsors have even been seeking additional flexibilities, particularly around including widening addbacks to Consolidated Net Income or EBITDA for non-recurring, exceptional, one-off and extraordinary costs and losses and/or the ability to add back lost revenues relating to the pandemic.

The Continued Rise of the Direct Lending Market

Whilst M&A/refinancing transactions were thin on the ground during the second quarter of the year when access to the high-yield bond and syndicated loan markets was shut off, for deals that were getting done (whether refinancings of or bids for “Covid proof” credits) sponsors had to look for alternative financing sources, and largely looked to the direct lending market to obtain it.

In recent years, there had already been a rise in the provision of financing by private credit funds on a bilateral or club basis, as an alternative to the bank/term loan and high-yield bond products. Credit funds were already increasingly competing with banks to underwrite deals directly, whether in full or together with another credit fund, and whether for the entire capital structure or part (eg, privately placed second lien/junior debt), and have been more willing than ever to finance larger deals and to compete with underwriting banks on documentary terms – this theme was compounded by the COVID-19 crisis, as direct lenders sought to entrench themselves as an alternative option for larger transactions. In particular, in 2020 direct lenders provided very substantial loan financing(s) as a direct alternative (and on similar terms) to a high-yield bond (with one such financing also, unusually for a direct lending capital structure, sitting ahead of a senior unsecured high-yield bond higher up in the structure).

While in previous years the terms of unitranche deals were much more conservative than the alternative financing sources available to private equity firms and companies in Europe – and were generally utilised in the small or mid-cap transactions – in 2020 the terms and conditions executed on such transactions (however, they are labelled) moved even closer in a meaningful way to the terms in the large cap syndicated or even high-yield bond markets, and have been deployed on larger cap transactions.

On the whole, some differences do remain, given the difference in underlying investment philosophy between such credit funds (who take and hold the relevant credit) on the one hand and underwriting/arranging banks (who syndicate to institutional/CLO investors) on the other. In particular, the direct lenders remain more focused on the integrity of the capital structure and generally require a financial covenant to be included. This means that this is not a homogenous market. However, the factors mentioned above, combined with the philosophy of the sponsors and their legal counsel (as to desiring to achieve the same documentary terms for all their portfolio companies, regardless of the size of the transaction or the type of debt product issued) is significantly narrowing the gap.

Amendments, Covenant Re-sets, Liquidity Financings and Incrementals, and State-Backed Financings

In the uncertain months following the start of the COVID-19 pandemic, it became clear that “liquidity is king”. Accordingly, a great deal of the financing opportunities and activity in the market revolved around the obtaining and maintaining of liquidity. From a sponsor/borrower perspective these included (i) looking at how to obtain additional liquidity without getting lender consent (so drawing RCFs, and exploring the utilising of existing debt baskets and/or incremental debt capacity within their existing capital structures) and (ii) utilising any of the state aid/government-backed financing programmes that were swiftly made available throughout many European jurisdictions (eg, the Corporate Covid Financing Facility and Coronavirus Large Business Interruption Loan Scheme in the UK, the EUR 600bn Economy Stabilisation Fund plus programme by KfW (the state owned development bank) in Germany, and the EUR300 billion loan guarantee programme by Bpifrance (a public investment bank) in France, as well as similar measures and programmes in Spain, Italy, Greece, the Netherlands and Belgium).

In addition, despite the great flexibility already contained within incurrence-based covenant packages in existing transactions, 2020 saw a great deal of amendment requests made within existing portfolios (as sponsors/borrowers worked together with lenders to agree workable solutions during the pandemic crisis). Common requests by borrowers included (i) dealing with actual or potential breaches of the “springing” financial covenant (present even in incurrence based covenant packages to the extent the revolving facility is sufficiently drawn), whether by way of temporary suspension of financial covenants (often into 2021), full financial covenant re-sets, or by changing EBITDA itself (eg, by allowing additional addbacks to EBITDA to the extent relating to lost revenues due to COVID-19 (affectionately nicknamed “EBITDAC” by the market), or by allowing the substitution of an EBITDA number for 2020 with the corresponding figure from 2019 instead), (ii) granting debt service relief (eg, by temporarily allowing a PIK option for the existing facilities or deferring prepayment sweeps), (iii) allowing for incremental debt capacity on top of what is contained in the baskets already, including to allow sponsors to inject additional pari or super senior debt to bridge the liquidity gap and/or allowing access to the state-backed aid schemes and/or increasing super senior debt capacity, (iv) given alternative working arrangements and general business disruption which affected borrowers’ ability to deliver financial statements within prescribed time periods, seeking extensions for such delivery and (v) amendments to more technical events of default to exclude the impact of the pandemic - such as MAE, failure to pay tax, audit qualification, cessation of business, etc.

Lenders generally reacted well to such amendment requests although frequently sought certain protections in response, with examples including requiring the inclusion of liquidity covenants for any financial covenant waiver/re-set period; requiring the provision of enhanced reporting information like monthly accounts or cashflow forecast reporting; and stopping access to certain permissions within the documentation (whether permanently or on a temporary basis whilst the amendment remains in effect). Many also required an equity injection from shareholders as a condition to consent – the philosophy being that lenders want to make sure the sponsor/shareholder is sufficiently invested in propping up the business until it can recover.


Due to the impact of the COVID-19 pandemic and the international response to it on the markets and on the wider economy, many otherwise economically viable European businesses have found themselves subject to considerable financial pressure. There have been some significant and newsworthy restructurings that have taken place in 2020 (including names such as Hema, Matalan, Swissport and Virgin Atlantic), but perhaps not as many as might be expected (or as many as compared to say the USA). This suppression of insolvency driven transactions has been largely due to the various support measures taken by the EU governments. It is anticipated that there will be a significant increase in such transactions once the support measures expire.


This year, 2020, has been a particularly interesting one for the European finance markets due to the impact of the COVID-19 pandemic. What has been possibly the most surprising is that, despite the shutdown of the markets for a period of several months, credit markets have been resilient and the financing environment remains highly competitive.

The full impact of the COVID-19 pandemic and the related worldwide recessions has clearly yet to be seen, however (having been thus far relatively suppressed by state aid programmes combined with the type of consensual amendments referred to above) – and bankruptcies and restructurings are almost certain to increase across Europe going into 2021.


Milbank LLP is a pre-eminent global law firm and has for over 150 years provided innovative legal solutions in many of the world’s largest, most complex, "first-ever" corporate transactions and disputes. Milbank’s clients are prominent multinational financial, industrial and commercial enterprises, governments, institutions and individuals.