Risk notes concerning indirect financing by means of subordinated loans
This offer is an offer of subordinated loans with qualified subordination (including pre-insolvency enforcement block or payment reservation) of Manisa Floyen Beteiligungs GmbH, Elbchaussee 370, 22609 Hamburg. Subordinated loans are long-term contracts under the law of obligations that are associated with economic, legal and tax risks. The Investor should therefore read the following risk information carefully and take it into account when making his decision. In particular, the Investor’s investment should correspond to his economic circumstances and his investment should constitute only a small part of his total assets.
The main legal and actual risks in connection with the investments offered, which are of material importance for the valuation of the investments, are described below. Furthermore, risk factors are presented that could impair the Borrower’s ability to generate the expected results.
Not all of the risks associated with the investments can be fully addressed below. Nor can the following risks be conclusively explained here. The order of the listed risks does not allow any conclusions to be drawn as to possible probabilities of occurrence or the extent of a potential impairment.
- General risks and risks arising from the structure of subordinated loans
- Maximum risk – total loss risk
There is a risk of total loss of the investment amount and interest claims. The occurrence of individual risks or the cumulative interaction of various risks can have a significant adverse effect on the Borrower’s expected results, which could lead to the Borrower’s insolvency.
Individually, the Investor may suffer additional financial disadvantages. This may be the case, for example, if the Investor finances the acquisition of the investment through a loan, if, despite the existing risk of loss, he plans to make fixed interest and repayment payments from the investment to cover other obligations, or due to costs for subsequent tax payments. In the worst case, such additional financial disadvantages can even lead to the private insolvency of the Investor. Therefore, the Investor should examine all risks taking into account his personal circumstances and, if necessary, seek individual professional advice. We expressly advise against external financing of the investment (e.g. through a bank loan).
The asset investment is suitable only as admixture into an investment portfolio. The granting of loans is suitable only for Investors, who could accept a developing loss up to the total loss of their investment. A legal or other deposit protection does not exist. The loan is not suitable for the age precaution. The risk of an additional payment obligation or other adhesion, which goes beyond the amount of the loan capital used, does however not exist.
- Subordination risk and entrepreneurial nature of financing
This qualified subordinated loan is an entrepreneurial financing with a corresponding entrepreneurial risk of loss (quasi-equity liability function). However, the Investor does not receive any participation rights under company law and thus does not have the possibility to influence the realisation of the entrepreneurial risk (in particular, he does not have the possibility to terminate loss-making business activities before the contributed capital has been used up).
The subordinated loan agreement is a loan with a so-called qualified subordination (including pre-insolvency enforcement block or payment reservation) (see section 8 of the General Loan Terms and Conditions). This means that all claims of the Investor under the loan agreement – in particular claims for repayment of the loan amount and payment of interest (“Subordinated Claims”) – cannot be asserted against the Borrower if this would give rise to insolvency proceedings on the part of the Borrower (i.e. over-indebtedness or insolvency of the Borrower). This means that the payment of interest and repayment of the loan cannot cause the Borrower to become insolvent. Then neither interest nor principal payments should be made to the Investors. The Subordinated Claims of the Investor shall also be subordinated to the following claims in the event of liquidation proceedings being conducted and in the event of the Borrower’s insolvency: The qualified subordination shall apply to all present and future claims of all non-subordinated creditors of the Borrower as well as to all Subordinated Claims referred to in Section 39 (1) of the German Insolvency Code (“Insolvenzordnung”). The Investor’s claims will therefore only be taken into account after full and final satisfaction of all other creditors of the Borrower.
The qualified subordination clause applies both before and after the opening of insolvency proceedings. The Borrower may not make a payment on the Subordinated Claims – irrespective of the opening of insolvency proceedings – even if there is a reason for insolvency with regard to the Borrower prior to the planned date of payment. The claims are permanently blocked in their enforcement as long as and to the extent that the crisis of the Borrower is not resolved.
The qualified subordination could have the following effects: The Borrower would have to suspend the payment of interest and principal as long as he is obliged to do so in the event of insolvency. The Investor might not demand its demands with maturity. The Investor would have to repay an interest payment, which he received despite the subordination wrongfully, on request to the Borrower. It exists also the possibility that the Investor does not receive the interest payments just like the amortization payments in the result due to the subordination. In addition, it could be that the Investor must pay taxes on interest already paid, although he is obliged to repay the amounts received.
- Lack of collateralisation of the loans
Since the loans are unsecured, in the event of the Borrower’s insolvency, the Investor would not be able to satisfy either his claim to repayment of the capital employed or his interest payment claims from collateral. In the event of insolvency, this could mean that the claims of the individual Investors cannot be enforced or can only be enforced to a lesser extent. This could result in interest or redemption payments not being made or not being made on time or in partial or complete loss of the invested capital.
- Final maturity of the redemption
Depending on the financing project, it can be agreed that the Borrower has to repay the loan capital in full or in part only at the end of the term on a certain date (final redemption). In individual cases, it may also be possible to repay the loan within a repayment window of up to six months before and after this date. If the Borrower does not receive the capital required for the repayment from the loan granted by the Borrower to a Project Owner resident in Norway, there is a risk that the final redemption cannot be made at all or at the planned time.
- Saleability (fungibility), availability of the invested capital, long-term commitment
The loan agreements have a fixed term. There is no provision for premature ordinary termination by the Investor.
Subordinated loans are not securities and are not comparable with these. There is currently no liquid secondary market for the loan agreements concluded. A sale of the loan by the Investor is in principle legally possible. However, the possibility of selling the loan is not assured due to the small market size and trading volumes. It is also possible that an assignment cannot be made at the nominal value of the receivable. It could therefore be the case that no buyer can be found in the event of a sale request or that the sale can only take place at a lower price than desired. The invested capital can therefore be tied up until the end of the contract period.
- Possible extension of the capital commitment
As these are subordinated loans, the loan may only be repaid if this would not result in the Borrower becoming insolvent and/or overindebted. If this were the case, the term of the loan would automatically be extended until this situation no longer existed. The investment is therefore not recommended for Investors who are dependent on receiving their money back exactly at the planned end of the term. If the Borrower’s financial difficulties were not resolved, there could be a partial or total loss of the invested assets and interest claims.
- Risk due to Investors’ rights of revocation
If the statutory right of revocation is exercised by Investors, there is a risk that the obligation of the respective Borrower to repay amounts already paid in will result in a corresponding outflow of liquidity from the respective Borrower. In this case, planned investments could not be made or could not be made as planned. In such a case, the economic performance of a Borrower could deviate significantly from the forecast. This can lead to lower interest payments to the Investors up to the total loss of the investment amount. In the event that several Investors withdraw their subscription at the same time, there is a risk that the respective Borrower could become insolvent. This can lead to a total loss of the investment amount.
- Risks on the part of the Borrower and the Norwegian Project Owner
- Business risk of the Borrower
This is an entrepreneurial form of financing. The Investor bears the risk of an adverse business development of the Borrower. There is a risk that the Borrower will not have the necessary funds available in the future to meet the interest claims and repay the loan proceeds. The economic success of the financed project cannot be predicted with certainty. The Borrower cannot assure or guarantee the amount and timing of inflows.
- Default risk of the Borrower (issuer risk)
The Borrower may become insolvent or overindebted. This may in particular be the case if the Borrower has lower income and/or higher expenses than expected or if he cannot obtain any necessary follow-up financing. The Borrower’s insolvency may result in the loss of the Investor’s investment and interest, as the Borrower does not belong to any deposit guarantee scheme.
- Risks arising from the transfer of the loan amount to a Project Owner located in Norway and the implementation of the (re)financing project
The Borrower will transfer the entire loan amount in the form of a further loan to a Project Owner located in Norway. In order for the Borrower to pay interest and principal to the Lenders on time and in full, the Borrower must ensure that the Norwegian Project Owner meets all its obligations to the Borrower under this additional loan agreement on time and in full. If this is not the case, the Borrower may experience payment difficulties or even become insolvent.
The Norwegian-based financed Project Owner is in particular not expected to be able to meet its obligations to the Borrower if the planned project to be financed by the loan cannot be successfully implemented as expected.
In addition, further risks may arise from the fact that the loan proceeds will be passed on. For example, the Norwegian-based Project Owner could refuse to pay the Borrower. The Borrower could thus be dependent on legal enforcement of his claims.
The Norwegian-based Project Owner is independend from the Borrower under company law. Accordingly, the Borrower has no corporate influence over the Norwegian resident Project Owner.
- Risks arising from the business activities of the Norwegian-based Project Owner and the implementation of the financed project
Various risk factors may affect the ability of the Norwegian-based Project Owner and the Borrower to meet their respective contractual obligations.
These include, but are not limited to, risks arising from the implementation of the project pursued by the Project Owner. The planned project may be more complex than expected. Unexpected and/or higher implementation risks may occur and/or business processes may involve more effort and costs than expected. Planning errors could emerge or contractual partners of the Project Owner could perform poorly. Required approvals could not be granted. There could be delays in the planned process and/or problems in generating revenues or savings in the planned amount or at the planned time. Insurance coverage, if any, may not be sufficient. Legal requirements may change and may require changes or additional actions in connection with the project, which may result in additional costs and/or delays.
On the other hand, the general business activity of the Norwegian-based Project Owner may also be associated with risks, such as market-related risks (e.g. decline in demand and sales; payment difficulties or insolvencies of customers; cost increases and capacity bottlenecks on the procurement side; political changes; interest rate and inflation developments; country and exchange rate risks; changes in the legal and tax framework of the Project Owner’s activity) and company-related risks (e.g. quality risks; product defects; financing and interest rate risks; risks from trademarks and industrial property rights; dependence on partner companies and qualified personnel; risks from legal disputes, inadequate insurance cover, from the shareholder and/or group structure, from the internal organization, from asset valuations and back taxes).
These and/or other risks may have a negative impact on the net assets, financial position and earnings of the Norwegian-based Project Owner and/or Borrower. As a result, the Norwegian-based Project Owner and the Borrower may not have the necessary funds at their disposal in the future to meet Investors’ interest claims and repay the loan capital employed.
- Special purpose vehicle
The Borrower is an issuing special purpose vehicle (“Ein-Zweck-Gesellschaft”). The Borrower does not engage in any business which could cover possible losses and overcome payment difficulties other than transmitting the loan amounts to the Norwegian Project Owner. Whether and when the interest owed under the loan agreement and the repayment of the loan can be made will therefore depend to a large extent on the economic success of the Norwegian-based Project Owner.
- Key person risk
The loss of key personnel from the Norwegian-based Project Owner carries the risk that expertise is no longer available and that qualified business development and risk management can no longer be fully guaranteed. The loss of such persons could have an adverse effect on the economic development of the Norwegian-based Project Owner. This could reduce the level of interest and/or principal payments to Investors or cause them to default.
- Supervisory risk
There is a risk that the legal framework may be changed or that the activity of the respective Borrower may change in such a way that it constitutes an investment fund within the meaning of the German Investment Act, so that the Federal Financial Supervisory Authority may take measures in accordance with section 15 of the German Investment Code (“Kapitalanlagegesetz”) and, in particular, order the reversal of the Borrower’s transactions. This can lead to lower interest payments to the Investors up to the total loss of the investment amount.
- Forecast risk
The forecasts concerning the progress of the project, the costs of carrying out the project and the income to be obtained may prove incorrect.
Past market or business developments are not a basis or indicator for future developments.
- Risks on part of the Lender (Investors)
- Debt financing risk
Depending on the individual circumstances, the Lender may suffer further financial disadvantages e.g. due to additional tax payments. If the Lender finances the loan amount, for example by borrowing a private loan from a bank, the loss of the invested capital may be accompanied by a threat to the Lender’s other assets. The maximum risk of the Lender in this case is an over-indebtedness, which in the worst case can lead to the private insolvency of the Lender. This may be the case if the Lender is financially unable to service the interest and repayment burden from its external financing in the event of small or no repayments from the loan. The Borrower therefore advises against external financing of the loan amount.
- Risk of changes in the legal and tax framework conditions
It cannot be ruled out that the subordinated loans will be affected by future tax, company or other legal changes in such a way that an appropriate deduction will have to be made on the interest payments and therefore the expected results for the Lender cannot (any longer) be achieved. There is also the risk that the acquisition, sale or repayment of the subordinated loans will be taxed, which would entail additional costs for the Lender. These costs would also be borne by the Lender in the event of total loss of the loan amount. The assumption of these costs may lead to a private bankruptcy of the Lender.
- Information on risk diversification and avoidance of risk concentration
Due to the risk structure, the investment in subordinated loan agreements should only be regarded as a component of a diversified (risk-mixed) investment portfolio. By distributing the invested capital across several asset classes and projects, a better risk diversification can be achieved and “cluster risks” can be avoided.
- Information of the platform operator
- Scope of the project evaluation by the platform operator
The platform operator only carries out a plausibility check prior to posting a project on the platform. The placement on the platform does not constitute an investment recommendation. The project information is information provided by the Borrower and the Norwegian Project Owner. The platform operator does not assess the creditworthiness of the Norwegian-based Project Owner and does not verify the truthfulness, completeness or timeliness of the information provided by the Project Owner.
- Activity profile of the platform operator
The platform operator does not perform any consulting activity and does not provide any consulting services. In particular, no financing and/or investment advice and no tax and/or legal advice are provided. The platform operator does not make any personal recommendations to Investors regarding the purchase of financial instruments on the basis of an examination of the personal circumstances of the respective Investor. Personal circumstances will only be requested to the extent required by law in the context of investment brokerage and only with the aim of providing the legally required information, but not with the aim of making a personal recommendation to the Investor to purchase a particular financial instrument.
- Information content of the project description
The project description on the platform does not claim to contain all information necessary for the assessment of the plant offered. Lenders should use the opportunity to ask the Borrower questions, obtain information from independent sources and seek expert advice if they are unsure whether they should enter into the loan agreement. As each Lender can pursue personal objectives in its lending, the information and assumptions about the subordinated loan offered should be carefully considered, taking into account the individual situation.