Recapitalising EU companies – An innovative way towards sustained and inclusive recovery

Press release 

Promoting the recovery of Europe's SMEs with hybrid funding

Key points

The EESC:

• notes that EU companies rely excessively on banking financing, with an equity and capital shortfall estimated in EUR 450-600 billion. This poses companies at risk, especially considering current high levels of corporate debt and economic distress;
• recommends encouraging new sources of funding through the development of a framework that enhances hybrid financial instruments, so that they are easy to implement, reinforce firms' balance sheets and support investment;
• identifies highly subordinated instruments as the best possible option, as they:
  • are already regulated in some EU countries, henceforth being a secure instrument for Micro, Small and Medium-Sized Enterprises;
  • constitute an agile and easy to implement long-term solution;
  • are compatible with family businesses, as families wish to retain control of their firm;
• recommends that these instruments enjoy a quasi-equity status, so as to not account as debt in balance sheets, and rank just before equity in waterfall payments hierarchy;
• encourages a scheme that establishes collaboration between private and public institutions, including banks, asset managers, public sector, and institutional investors (insurers and pension funds);
• highlights that an EU-wide instrument model could benefit from the visibility, liquidity and scale of the single market and generate broad appeal among institutional investors, encouraging investment and supporting the capital markets union.