Promissory note loan

A promissory note loan is a (bond-like) loan over which a promissory note is issued as evidence. It is a financing instrument for the medium to long-term financing of the borrower and is issued through the arrangement of capital collection agencies .

Such capital collection agencies (financial intermediaries) can be banks as well as insurance companies or building societies.

They make it unnecessary for the borrower to issue via the capital market and the associated publication and documentation costs as well as an external rating .

The essential features of a promissory note loan are:

  • Promissory note as evidence of the existence of the loan,
  • Financing the loan via the capital collection agency ,
  • (usually) no external rating ,
  • no leaflet
  • no organized trade / secondary market ; only “otc” tradable.

Legal basis

The legal basis of the borrower’s note loans under German law are, on the one hand, §§ 488 ff. BGB, since the promissory note loan is also a special form of the loan agreement.

On the other hand, §§ 344 HGB and 371 BGB, according to which the promissory note certifies the existence of the lender’s claim against the issuer of the borrower’s note loan.

The granting of a promissory note bond is a banking transaction within the meaning of section 1 I 2 no. 2 KWG and its commercial assignment is subject to authorization in accordance with Art. Section 32 I 1 KWG.

According to the prevailing opinion, short-term promissory note loans are money market instruments within the meaning of § 2 Ia WpHG and thus financial instruments within the meaning of § 2 IIb WpHG.

The promissory note loan is already no security within the meaning of § 2 I WpHG and accordingly can not be traded on the stock exchange. A trade in promissory note loans is – if at all – only possible “over the counter” (OTC).

The individual components of the documentation of the borrower’s note loan (loan agreement and promissory note issued) are not bonds in accordance with. §§ 793 et seq. BGB, so that the German Securities Lending Act (SchVG) is also not applicable.

Something closer to the promissory notes already registered bond: This is to a certain creditor, so that a transfer to other creditors or trading on the stock market are not provided. Registered bonds are also not securities within the meaning of § 2 I WpHG.

From classic credit

Although the promissory note loan is a loan within the meaning of §§ 488 et seq. BGB, it nevertheless has to be distinguished from the classical loan :

Simply stated, the main difference to a classic loan is that a prospective borrower is proactively seeking potential investors.

Arranger, settlement and process

The capital collection office mentioned above can only act as a pure intermediary between lenders and borrowers. In most cases, however, the capital collection center – as arranger – closes the borrower’s note loan directly with the borrower and resells it to the investors.

At the same time, the tasks of the arranger represent the central phases of the processing or the process:

  1. structuring
    1. Development of an individual and marketable financing structure
    2. Creation and negotiation term sheet
    3. Compilation information package
    4. Coordination of the financing process (including timing)
  2. placement
    1. Vote banking circle
    2. Invitation banks
    3. Shipping Information Package
  3. documentation
    1. Coordination of contract documentation with the client and the banks
    2. allocation
    3. interest rate fixing
  4. graduation
    1. Signing
    2. Accompaniment of the payment conditions
    3. Proportional assignment to the participating banks
    4. Signing promissory notes and handing them over to the bank
    5. paying out
    6. Acceptance of the paying agent function
    7. Support for transactional publicity

Paying Agent

Afterwards, the arranger becomes the so-called paying agent.

The paying agent assumes similar tasks to the promissory note loan as the agency in the case of the club deal : in particular the communication between investors, banks and borrowers as well as the clearing and routing of payment flows.

The function of the paying agent need not necessarily be assumed by the arranger . In practice, however, this is the case regularly.


In the past, borrower’s note loans were predominantly issued by the public sector. Municipalities and cities in particular ( Dortmund and Offenbach ) became public issuers of borrower’s note loans.

But in recent years, the promissory note loan has also become more interesting for companies: For example, the promissory note loan for SMEs has become an interesting alternative to traditional bank financing. However, DAX companies are increasingly becoming issuers of promissory notes ( HeidelCement ), choosing it as an alternative to bank financing and financing via the capital market.

Since only companies with a good credit rating guarantee a broad ranking among investors, while at the same time the majority of the issuers are doing without an external rating , the arranger regularly pays attention to a good credit rating and good name of the potential issuer. Thus, a good credit rating is the most important prerequisite for issuing a promissory note loan. The (internal) rating of most issuers is therefore also investment grade; even if the current low interest rate environment increasingly weaker credit ratings are represented.

As a result, the promissory note loan in the market is currently perceived as a seal of approval for borrowers.



The investors in promissory note loans are primarily banks, savings banks and (less frequently) insurance companies, who pursue a classic buy-and-hold strategy with the investment.

Individuals or private investors are rare investors in promissory note loans – if only as a family office or pool.


The interest rate for a promissory note loan is based primarily on the following factors :

  1. Creditworthiness of the issuer,
  2. Planned duration of the borrower’s note loan and
  3. Spread level of comparable issuers.

It is usually around 25 to 50 basis points above the interest on a comparable bond, which can be justified by the lack of trading and liquidation possibility.

From the point of view of the issuer, however, the costs for the higher interest rates can be offset by the other cost savings (no costs for publication, documentation and external rating). The conditions should therefore always be considered holistically and not limited to the interest rate .

Depending on the form, the interest payment for promissory note loans is possible quarterly, semi-annually or annually in arrears.

With variable interest rates, interest is usually calculated according to the mode act / 360 and with fixed interest rate act / act.

The interest rate risk for issuers and investors in the case of borrower’s note loans also depends on the type of interest: For while the interest rate risk is retained for a variable interest rate, it is excluded in the case of a fixed interest rate.

Promissory notes are carried at amortized cost to investors; so at face value.

This applies both to IAS / IFRS accounting (IAS 39 and IFRS 9) and to HGB accounting (§ 341c HGB).

The reasons for this are the lack of stock market listing and thus the lack of opportunity to determine a current market value (fair value) as well as the buy-and-hold approach pursued by the investors. The classification according to IAS 39 is therefore also in the category “Held-to-Maturity”.

According to Solvency II , a different valuation according to the “fair value principle” is necessary for the accounting.

Issuers who have to take account of the national accounting regulations of the German Commercial Code (HGB) report promissory note loans under the balance sheet item “other liabilities” (§ 266 III C. 8 HGB).

For investors , promissory note loans are recognized under the balance sheet item “other loans” (§ 266 II A. III.HGB).

As promissory note loans are not traded on the exchange, secondary market transactions are exclusively OTC transactions . Pricing is generally only available on request by investors.

If investors want to buy promissory notes, the conversion takes place by means of assignment (assignment) acc. §§ 398 ff. BGB. In general, the transfer is already contractually simplified compared to traditional loans to reflect the nature of a capital market instrument.



The repayment of promissory note loans can in principle be freely designed. In practice, however, is almost exclusively a bullet repayment instead ( “Bullet”).


Termination on the part of a non-public issuer (in particular a corporation) is possible after a term of 10 years if the promissory note loan has a fixed interest rate in accordance with the statutory right of termination BGB (§ 489 I No. 2 BGB).

With variable interest, the promissory note loan acc. § 489 II BGB even at any time (subject to a notice period of 3 months) terminable.


As a rule, there is no collateral for borrower’s note loans: this means that borrower’s note loans are primarily senior unsecured .

The lender limits risk by means of so-called covenants (especially negative pledge, pari passu, change of control, cross default, cross acceleration and financial covenants).

Minimum amount

The promissory note loan is generally possible from a minimum amount of EUR 20 to 25 million , meanwhile in individual cases even from a volume of EUR 10 million.

The bulk of the transactions is in the range of EUR 50 to 150 million.


The maturity of promissory notes is between 3 and 10+ years. The most common terms are 3, 5 and 7 years.

Market volume

Market volume

The market volume for promissory note loans of companies in 2014 amounted to more than EUR 9 billion.


The cost of the borrower’s note loan is not limited to the interest payable:

In addition to this, an arrangement fee is to be paid to the arranging bank and an ongoing fee for the assumption of the paying agent function.

Overall, however, these additional costs are well below the comparable costs for a syndicated loan.

As a rule, only 0.5 to 0.7% of the loan amount is due as incidental costs (for smaller volumes, however, up to 2%).


Basel III

The promissory note loan has also become increasingly interesting for lending banks:

The stricter requirements of Basel II and Basel III oblige banks to reduce their expensive equity and risk-weighted assets.

As a result, direct lending to companies becomes increasingly unattractive and correspondingly more restrictive.

The promissory note loan in this situation for banks is a risk-neutral alternative to traditional lending.

Advantages and disadvantages


  • wide circle of investors
  • SSD are considered a seal of quality
  • less documentation and publishing effort
  • low minimum volume (some already possible from EUR 10 million)
  • significantly lower transaction costs compared to club deal
  • Less time required ( arrangement possible in less than 10 weeks)
  • Accounting at Acquisition Costs (HGB and IFRS)


  • statutory termination rights of the borrower
  • dR no external rating
  • no liquid secondary market
  • Transfer of ownership only by way of assignment