Financial Instruments under EU Programmes (COSME, H2020) TAIEX Workshop- Belgrade, March 2016
EIF at a Glance EU specialised institution for SMEs risk financing Debt - Structuring and Guaranteeing portfolios of SME loans/leases and microcredit Equity - Venture Capital and Mezzanine (fund of funds) Geographic Focus: EU 28, EFTA, Candidate Countries Distribution through Banks and Funds (Full delegation) Founded in 1994 & started providing VC to businesses in 1997 Multilateral Development Bank (MDB) status Basel II 0% risk weighting Aaa/AAA/AAA ratings (Moody s/s&p/fitch) Shareholding Structure: EIB: 61.3%, EIB shareholders: 28 EU Member States European Commission: 26.5% 29 European Financial Institutions: 12.2% 2 1
Helping businesses at every stage of their development Portfolio Guarantees & Credit Enhancement Public Stock Markets VC Funds, Lower Mid-Market & Mezzanine Funds Social Impact Funds VC Seed & Early Stage Microcredit Business Angels, Technology Transfer PRE-SEED PHASE SEED PHASE START-UP PHASE EMERGING GROWTH DEVELOPMENT SME Development Stages HIGHER RISK LOWER RISK 3
EIF Financing under EU programmes Guarantees & Debt Programmes Equity Programmes Public Stocks EIB InnovFin products** COSME Equity Facility for Growth InnovFin SME Guarantee SME Initiative COSME Loan Guarantee Facility Cultural and Creative Sector Guarantee Facility* InnovFin SME Venture Capital InnovFin Tech Transfer* EaSI* (Employment & Social Innovation) * Not yet signed ** InnovFin MidCap Guarantee InnovFin MidCap Growth Finance InnovFin Large Projects ERASMUS+ Student loans PRE-SEED PHASE SEED PHASE START-UP PHASE EMERGING GROWTH DEVELOPMENT SME Development Stages HIGHER RISK LOWER RISK 4
Equity Instruments Innovfin SME Venture Capital COSME EFG Single EU Equity Financial Instrument
EIF s role in the equity market Early support in Fundraising Quality Stamp Improvement to Terms and Conditions Promotion of best corporate governance practice Transparency Support to Emerging Teams Long-term support 6
Strategic Challenges EIF Current Investment Focus EQUITY: Involved throughout the business cycle Technology Transfer Accelerator Investing in VC funds Investing in Growth Capital Mezzanine Technology Transfer Proof of Concept Business Angels Seed Stage Early Stage Business Angels Expansion/ Development Capital Lower Mid-Market Provide instruments to stimulate innovation, competitiveness and entrepreneurship Fill funding gap left by institutional investors Support VC ecosystem and decrease dependency on public finance Business development Catalyse hybrid debt finance for growth European Commission Resources EIB / EIF Resources Member States / Private Sector Resources 7
Single EU Equity Financial Instrument Single EU Equity Financial Instrument Supporting Union enterprises growth and research and innovation from the early-stage to growth and expansion InnovFin SME Venture Capital (EUR 430M + EUR 30M BA ICT pilot) EU 28, Norway, Albania, Bosnia and Herzegovina, FYROM, Montenegro, Serbia, Turkey, Israel, Moldova, Faroe Islands, Ukraine COSME Equity Facility for Growth (EFG) (up to EUR 630M) EU 28, Iceland, Montenegro, Turkey, FYROM, Albania, Serbia PRE-SEED PHASE SEED PHASE START-UP PHASE EMERGING GROWTH DEVELOPMENT EXPANSION HIGHER RISK Multi-Stage funds InnovFin SME VC & COSME LOWER RISK 8
InnovFin Platform 9
InnovFin SME Venture Capital key features VC and BA Funds focusing on companies in Early Stage Focus on Horizon 2020 objectives (e.g. ICT, life sciences, clean energy, technology) Enterprises in pre-seed, seed, start up phases (seed & A rounds included) Pari-passu, at least 30%* investment from private investors Investment size up to EUR 30m up to 50%** of total commitments (CATALYTIC) Open Call for Expression of Interest until 30/09/2020 * 10% in the case of BA Co-investment Funds ** Up to 70% in the case of BA Co-investment Funds, subject to conditions. 10
InnovFin Intermediaries & Final Recipients Eligible Financial Intermediaries BA, VC, PE funds Eligible Final Recipients Enterprises, Spin-off, Projects early stage focus EU 28 & Horizon 2020 Associated Countries Horizon 2020 objectives early stage InnovFin BA ICT pilot BA Funds focusing on ICT investments specific terms & conditions EU 28 & Horizon 2020 Associated Countries 50% of investable amounts into ICT Final Recipients Focus on Final Recipients in CEE Countries Co-investments with groups, syndicates or networks of BAs InnovFin Excluded At the time of 1 st investment 11
COSME EFG Key features Investment funds/vehicles, private equity funds Focus on companies in their expansion & growth phase Sector generalist Pari-passu, at least 30% investment from private investors Investment size up to EUR 30m Up to 25% of total commitments Addressing Multistage funds with InnovFin SME VC (single Call for EI) 12
COSME Intermediaries & Final Recipients Eligible Financial Intermediaries BA, VC, PE funds Eligible Final Recipients SMEs Growth /expansion stage focus EU 28 & COSME Associated Countries Growth/ expansion stage EU 28 & COSME Associated Countries Excluded At the time of 1 st investment 13
InnovFin SME VC - COSME EFG synergies First stage of development of an enterprise (Pre-) Seed-Stage & Start-Up Stage Early Stage 0% 50% 75% 100% InnovFin SME VC Eligible Multi-stage split ex ante COSME Eligible 100% 75% 50% 0% Growth & Expansion Company with a product or service and has generated revenues (but not necessarily profit) 14
Selection and investment process FI EIF EC Call for Expression of Interest* Send acknowledgement of receipt EUequityInstrument@eif.org Application/Investment Proposal EIF Assessment Process First/Second Screening Appraisal Authorisation Due Diligence Policy fit EC non objection EIF Board Legal Negotiation/Signature * Applications received through EIF customary channel dealflow.inv@eif.org are considered as well 15
Debt Instruments Innovfin SME Guarantee COSME LGF
InnovFin Product Overview 17
InnovFin SME Guarantee Responsible EC Service/Timeframe: DG Research & Innovation / 2014-2020 Target over EUR 10bn of financing to benefit innovative SMEs and Small Mid-Caps over the next 7 years Purpose: improve access to finance for innovative SMEs and Small Mid-Caps EIF provides direct (and indirect) financial uncapped guarantees to selected Financial Intermediaries (FIs) Guarantee Rate: up to 50% of losses incurred in each loan Thanks to EIF Multilateral Development Bank status (MDB) and pursuant to Basel II, no capital charge expected on the covered part of the Portfolio Transfer of benefit and acceptable portfolio risk profile Capacity of InnovFin has been boosted during 2015-2017 in anticipation of the implementation of the European Fund for Strategic Investment (EFSI) EUR 2.8bn guarantees signed as of March 2016, covering SME and small-midcap portfolio volume of EUR 6.5bn spread across 24 countries 18
Distribution of InnovFin across EU Status of InnovFin implementation: (as of March-16) 67 applications Overview of signed contracts across Europe (as of March 2016) 59 for the direct guarantee 8 applications for the counter-guarantee 44 guarantee contracts signed covering 24 countries for a total guarantee amount of EUR 2.8bn Enabling over EUR 6.5bn of loans/ leases to innovative SMEs and small mid-caps 19
InnovFin - Focus Eligible financing: New loans, credit lines, bonds (such as mini-bonds) and/or financial leases; to be originated within a two-year period by the selected intermediary (up to Dec. 2022 under H2020 programme) Eligible debtors: SMEs (EC definition) and Small Mid-caps (< 500 FTE employees); Operating in EU-28 and H2020 Associated Countries; and Innovative invest in producing or developing innovative products, processes and/or services and where there is a risk of technological or industrial failure; or innovative SMEs/Small Mid-caps, i.e. satisfying at least one of a list of predefined criteria; fast growing enterprises, measured by employment or by turnover: annual increase > 20% Can be combined with EIB funding facilities (subject to specific criteria and transfer of benefit requirements) 20
Underlying Transaction Criteria Purpose of Financing (Term Loans/Leases + Revolving Credit Facilities): Tangible & Intangible Assets Working Capital Business Transfers Loan amount: min EUR 25k - max EUR 7.5 m (only Senior Debt) Loan maturity: min 1 year - max 10 years Currency: EUR and local currency Max (counter-)guarantee amount is EUR 200m per intermediary (EUR 500m per intermediary group) 21
Key Guarantee Terms Up to 50% loss coverage (Principal + Interest 90D) Full Delegation to Financial Intermediaries Automatic Coverage/ Inclusion Attractive Guarantee Terms Favourable Capital Treatment Guarantee and Counterguarantee 22
Key Guarantee Terms Guarantee Fee: SME 0.50% p.a. Guarantee Fee: Small Mid-Cap 0.80% p.a. Payable either quarterly based on the average portfolio balance or up-front (based on an amortisation schedule) Financial Intermediaries are required to transfer the Financial Benefit to SMEs & Small Mid-caps: reduced interest rate (direct guarantees) reduced guarantee fee premium (counter-guarantees) 23
Financial Intermediary Gguarantee from EIF Direct - Guarantee structure Guarantee payment can be structured either as (i) an upfront payment of the defaulted exposure amount and pro-rata sharing of the recoveries, or (ii) a payment of the net loss at the end of the recovery work-out process. Portfolio of Final Recipient Transactions EIF Portfolio of Guarantees Uncapped Guarantee Guarantee from EIF Guarantee Fee EIF as Guarantor Credit risk retained by the Financial Intermediary* Guarantee coverage provided by EIF Up to 50% guarantee rate on a loan by loan basis Additional external credit protection may be obtained by the Financial Intermediary. At any time the economic exposure retained by the Financial Intermediary towards any Final Recipient Transaction must not be lower than 20% of the principal amount outstanding. 24
InnovFin Selection Process Selection of FIs through a Call for Expression of Interest published on 4 August 2014 on EIF website http://www.eif.org Application assessed on a «first come, first processed» basis by EIF Selection procedure: Pre-selection of Expression of Interest based on the evaluation criteria Due diligence exercise of pre-selected Applicants Transaction proposal 25
COSME LGF Loan Guarantee Facility Successor of the CIP SME Guarantee Facility as part of the Europe 2020 strategy EC facility enhancing access to finance for European SMEs Call launched in August 2014 with an estimated budget of EUR 690m (2014-2020) COSME LGF provides: Free of charge capped portfolio guarantees and counter-guarantees for additional SME risk-taking A securitisation option on mezzanine tranches of SME debt portfolios subject to additional lending to SMEs COSME LGF is implemented through Financial Intermediaries like guarantee schemes, banks and leasing companies Thanks to COSME LGF, Financial Intermediaries go beyond their current lending or guarantee practice or increase lending volumes 26
COSME LGF country coverage to date 28 agreements signed for EUR 10bn of SME financing for an aggregate budget allocation of EUR 332m Financial Intermediaries are: - AWS, Austria - BdM-MCC- Fondo di Garanzia, Italy - BGK, Poland - Buergschafstbanken, Germany - CdP-SACE, Italy - CERSA, Spain - CIBANK, Bulgaria - CKB, Montenegro - CMZRB, Czech Republic - Credito Emiliano, Italy - EZBOB, UK - Flemish Participation Fund (PMV), Belgium - France Active Garantie, France - GE Capital Equipement Finance, France - IdeaBank, Poland - Iwoca, UK - K&H, Hungary - KfW, Germany - Kredex, Estonia - LfA, Germany - Libra Internet Bank, Romania - MicroBank, Spain - Qredits, Netherlands - Raiffeisen Leasing, Poland - Slovene Enterprise Fund, Slovenia - SOCAMA, France - SOWALFIN, Belgium - Vaekstfonden, Denmark 17 Countries where agreements have been signed +0 Countries where transactions have been approved +5 Countries where applications have been received 27
COSME LGF capped (Counter-) Guarantee Structure Financial Intermediary s Portfolio of Higher Risk Transactions to SMEs Guarantee Rate on a loan by loan basis 50% maximum COSME LGF s capped (counter-) guarantee proposed features Structured in the form of guarantees or counter-guarantees (Counter-) Guarantee rate typically set at maximum 50% Risk retained by the Financial Intermediary 20% minimum* of the original portfolio Expected Loss Guarantee Cap Rate Pari-Passu ranking (Counter-) Guarantee cap rate fixed at the level of Expected Losses (max 20%) COSME guarantee has 10 year maturity Eligible loans min 12 months maturity Retained exposure of the Financial Intermediary to the SME transactions needs to be min 20%* * The minimum 20% level is based on the consideration that financial intermediaries could combine additional credit risk protection financial instruments alongside with the proposed COSME (counter-)guarantees 28
COSME LGF Eligibility Criteria Final Recipient Transactions: Amount: up to a maximum of EUR 150,000 larger transactions can be included provided that the Final Recipient does not fulfil any of the 12 InnovFin Innovation Eligibility Criteria Maturity: minimum 12 months Purpose: - Working capital (including revolving credit lines maximum maturity of 5 years and overdrafts; excluding factoring and credits or loans resulting from utilisation of credit card limits) - Investments Final Recipients: SMEs as defined in Commission Recommendation 2003/361/EC (OJ L124, 20.05.2003, p. 36) Established in one of the COSME programme countries They should not be undertakings in difficulty as defined in General block exemption regulation (Commission regulation (EU) No C(2014) 651/2014, 17.06.2014) 29
What are Higher Credit Risk Transactions under COSME LGF? COSME LGF covers Higher Credit Risk Transactions to SMEs of two types: Option 1 Target Higher Risk Profile clients/products through: - New product set up for Start-ups; OR - Extension in maturities and/or reduction in collateral; OR - New products or existing products offered to previously excluded client sectors Ground up COSME cover Unconditional guarantee Option 2 Increase in volumes of (guarantees of) loans to SMEs related to - most risky 25% of current portfolio by internal rating; OR - full portfolio in case of guarantee institutions and promotional banks COSME cover is conditional on the Intermediary realising certain volumes of activities as defined within the Guarantee Agreement Conditional guarantee 30
3 to 6 months (depending on quality of received information) IMPACT (1 to 3) COSME selection process and workflow Open Call for Expression of Interest Application Pre-Selection If Pre-selected Due Diligence Open Call published and open until September 2020 http://www.eif.org/what_we_do/guarantees/single_eu_debt_instrument/cosme-loanfacility-growth/index.htm Financial Intermediaries established and operating in one of the 28 Member States + Iceland, FYROM, Montenegro, Turkey, Albania and Serbia (further countries still expected until year-end)*can apply to the Open Call for Expression of Interest to benefit from a COSME LGF product First-come, first-served - evaluation based on: Compliance with formal criteria** Quality Impact Due diligence meeting Requirement of further information if necessary Revised Quality and Impact score QUALITY (A to C) A1 B1 C1 A2 B2 C2 A3 B3 C3 Pre-Selected On the Reserve List Not Pre-Selected Final Selection Proposal to EIF Board for approval (subject to EC veto right) Negotiations and agreement implementation GUARANTEE AGREEMENT *COSME is open to candidate, potential candidate and neighborhood policy countries **Signed Declaration of Honour + full Application submitted 31
Contact EU Single Equity Instrument Tomasz Kozlowski Head of Innovation & Alternative Financing Phone: (+352) 248 581 382 email: t.kozlowski@eif.org EIF 37B, avenue J.F. Kennedy L-2968 Luxembourg T :(+352) 24851 www.eif.org Minerva Elias Manager Innovation & Alternative Financing Phone: (+352) 248 581 750 email: m.elias@eif.org
Contact details COSME LGF EU Guarantee Facilities Team Gunnar Mai - Head of EU Guarantee Facilities +352 2485 81358 g.mai@eif.org Luís Broegas Amaro +352 2485 81438 l.amaro@eif.org Vasco Campilho +352 2485 81789 v.campilho@eif.org M. Chiara Amadori +352 2485 81629 c.amadori@eif.org Gabriela Mates +352 2485 81603 g.mates@eif.org Zöe Brejon de Lavargnée +352 2485 81744 z.brejon@eif.org Priscilla Schnepper +352 2485 81719 p.schnepper@eif.org Kiril Stoychev +352 2485 81791 k.stoychev@eif.org EUROPEAN INVESTMENT FUND 37B, avenue J.F. Kennedy L-2968 Luxembourg @ www.eif.org
Contacts EIF 37B, avenue J.F. Kennedy L-2968 Luxembourg T :(+352) 24851 www.eif.org Alicia Hlibowicka a.hlibowicka@eif.org +352.24.85.81.641 Diego Lucero d.lucero@eif.org +352.24.85.81.658 Jiri Chaloupka j.chaloupka@eif.org +352.24.85.81.748 Paul Samsonoff p.samsonoff@eif.org +352.24.85.81.587 Ricardo Frazão r.frazao@eif.org +352.24.85.81.804 Roland Kampe r.kampe@eif.org +352.24.85.81.271 Sandrina Da Cruz s.dacruzaraujo@eif.org +352.24.85.81.743 Vincent van Steensel Head of Portfolio Guarantees Phone: (+352) 248 581 351 email: v.vansteensel@eif.org Stefano Bragoli s.bragoli@eif.org +352.24.85.81.651 Teodor Radonov t.radonov@eif.org +352.24.85.81.518 Zvonimir Ratkovski z.ratkovski@eif.org +352.24.85.81.737 34 34 3434 16