The French market has significantly slowed down since last summer due to the dissolution of the French parliament and the ensuing political crisis. This ongoing situation, with no established government in France, has created substantial uncertainties for private credit players. The budget, including a potentially increased tax burden, has just been adopted. Consequently, many processes have come to a halt, although the authors are hopeful that activities will pick up again by the second half of 2025.

All industries and sectors have experienced credit activity. The key driver for borrowers in France to choose private credit results in their ability to raise additional debt to finance their build-up transactions and capex.

In the last six-to-twelve months, the public debt markets in France, including broadly syndicated loans and high-yield securities, have been competitive with the private credit market. Both leverage loan and high-yield issuance have almost doubled compared to the previous year, after a year of dominance of the private credit providers.

As a result of such reopening of the broadly syndicated loan markets and of lower interest rates, a strong refinancing activity in respect of private debt transactions has been noted. On the other hand, the authors have also seen some private credit providers refinancing Tranche A and/or Tranche B facilities with dedicated Tranche C facilities.

The large cap private credit transactions are regularly pooled between private credit providers to reach the desired amounts within the capital structure and compete with the BSLs, ensure liquidity for future adds-on and/or relationship purposes. On midmarket transactions it is also a trend that has now been confirmed as certain sponsors are eager to not rely on a single private credit provider for a given transaction.

Private debt funds are becoming increasingly involved in bid processes, offering very competitive pricing in comparison to the syndicated loan market, with underwriting fees at 2%, margins at 5% (and even 4.75%), and no flex, plus greater flexibility on leverage and covenants.

Banks like BNPP, Natixis, and CACIB are developing their own private debt vehicles.

There has also been an increase in the number of NAV financings, including to the benefit of private debt vehicles.

Key NAV providers in France include JP Morgan, Natixis, and 17Capital.

The increase of Euribor has made it more difficult for private credit to market their overall price (sometimes reaching 10%, which may be difficult for French CFOs to hear).

The ongoing political situation, with no established government in France, has also created substantial uncertainties for private credit players. The budget, including a potentially increased tax burden, has just been adopted. Consequently, many processes have come to a halt, although the authors are hopeful that activities will pick up again by the second half of 2025. The reduction of inflation in France and decrease of the interest rates by the ECB will also help the market by enabling PE players to reach an agreement more easily on the valuation of their assets and making financing available at a lower price.

Certain private credit providers quite commonly provide payment-in-kind (PIK) instruments where the financial structure so requires to complete an acquisition or further capex. These are usually structurally subordinated, have a senior and total leverage ratio with typically respectively approximately 10% additional headroom versus senior covenant and approximately 20% headroom to the business plan for total leverage. They are usually secured and sometimes have a board observer right. In some instances, PIK providers negotiate the benefit of specific rights under the senior debt intercreditor arrangements so as to provide equity cure in the form of further PIK instruments to be downstreamed where the sponsor fails to do so, and certain reporting rights addressed in a good behaviour letter from the sponsor.

Some PIK providers sometimes also participate as minority co-investors, sometimes through specific funds.

Private creditor providers also happen to provide mezzanine-type financings, sometimes having an equity kicker element.

Private credit providers are indeed primarily focused on private equity sponsors and their portfolio companies, due to the amount of deals that can be subject to financing opportunities and rollover of assets.

That being said, some PE assets that were anticipated to be sold are being retained by PE houses within their portfolios or are being incorporated into continuation funds, reducing the amount of deals that are available in the market. As a result, private credit players have diversified their lending activity towards sponsorless transactions, whether or not to the benefit of private companies and public companies.

Private credit providers are increasingly being seen to be more involved in financing of ARR and late-stage lending, in particular in the field of biotech.

Private credit transactions range from small to large-cap transactions, with some providers being able to provide large amounts on their own. However, the trend is for sponsors to pool two to four providers for the larger transactions, both for relationship and risk-management reasons, but also to ensure sufficient liquidity for future capex.

The private debt funds are steadily growing in size.

Lending is a regulated business in France and triggers licensing requirements. Whilst certain French regulated private credit funds (FPSs, SLPs, OTs, FPCIs) are permitted to originate corporate loans subject to certain requirements (applicable to the loans, the funds and their managers), foreign credit funds, other than EU ELTIF funds, are not permitted to extend loans in France.

AIFMD2

The current European Directive on Alternative Investment Fund Managers (AIFMD) requires fund managers to comply with a variety of prudential and conduct of business rules. These rules are general in nature and apply to business operations and dealings with investors generally. AIFMD also contains rules which are specific to investment techniques (such as leverage) and which are specific to certain asset classes (such as private equity) but is silent on loan origination. It has, however, been amended (to include loan origination among other matters) but is yet to be implemented across the European Union. It is referred to as AIFMD2 in its amended form.

AIFMD2 introduces a range of rules on loan origination. These include subject matters such as:

• implementing policies, procedures and processes for the granting of loans;
• implementing policies, procedures and processes for assessing credit risk;
• loan concentration of 20% of the fund’s capital (called and uncalled contributions) to a single borrower of a certain type;
• leverage restrictions (175% for open-ended funds and 300% for closed-ended funds); and
• prohibition to grant loans to the fund manager (or its staff) or to its delegates, to the fund’s depositary (or its delegates), or to group companies.

AIFMD2 should be implemented by 16 April 2026.

After such date, EU credit funds meeting the requirements set out by the AIFMD2 in relation to loan origination would be permitted to lend in the territory of the EU member states, including in France. This being said, AIFMD2 provides that an EU member state may prohibit credit funds from lending to consumers.

CRDVI

The current European Capital Requirements Directive (CRD) provides for a harmonised regime on banking business (including lending) across the European Union. CRD has, however been amended among other matters to include lending from outside of the European Union, but is yet to be implemented across the European Union. It is referred to as CRDVI in its amended form.

CRDVI introduces rules on lending by non-EU credit institutions (ie, banks) to European borrowers and will require such non-EU credit institutions to set up a branch office in the country of the borrower and obtain authorisation locally (exemptions are available). Other types of non-EU based lenders should remain unaffected provided they do not meet the materiality requirements of qualifying as a credit institution under CRDVI. Private credit funds should therefore not be affected in France. CRDVI implementing legislation is, however, still to be published in France.

CRDVI should be implemented by 11 January 2027.

Under the French banking monopoly principle, no person other than a credit establishment (licensed lending institution) is allowed to carry on banking transactions in France on a habitual basis.

As a result, private debt investments directly made available by private debt lenders to French borrowers are usually structured in the form of a bond issue, and documented under a subscription agreement attaching the terms and conditions of the relevant bonds.

Another way for private debt funds to participate in financing is to be transferred participations on a secoundary basis. Indeed certain UCITS (OPCVM, organismes de placement de valeurs mobilières) and AIFs (FIA, fonds d’investissement alternatifs) under French law (eg, private equity funds, real estate collective investment organisations, free partnership companies, specialised professional funds, financing organisations), and similar entities registered outside France, can benefit from a specific exemption to purchase receivables that have not yet matured, whether the relevant transferor is in France or abroad.

Regarding collateral, there is no licence or regulatory approval to take the benefit of security over assets located in France.

As mentioned in 1.9 Impending Regulation and Reform, lending is a regulated business and the primary regulator is the French banking supervisor (the Prudential Control and Resolution Authority, ACPR). However, French credit funds are not supervised by the ACPR; they are indirectly overseen by the French Financial Market Authority (AMF) through their managers, which are supervised by such authority.

To protect the French state’s public security, public order and national defence, the French foreign investment control regime requires prior authorisation for acquisitions of control (or 25% of the voting rights, for non-EU investors) of a French company active in a “sensitive” sector, such as defence, energy, transport, communications, health, food supply, R&D in AI, etc.

Foreign investments in private credit funds which do not hold shares in such “sensitive” companies or assets are not subject to such approval requirement.

French private credit funds are subject to the regulatory reporting requirements applicable to AIFs under the AIFMD generally. They are also subject to bespoke reporting requirements to the AMF and the French Central Bank.

Club lending by private credit providers should be carefully considered from an antitrust perspective. Due to multilateral lender discussions, these may be identified as higher risk, especially in smaller, less liquid markets where co-ordination is easier. Additionally, there are concerns about the exchange of competitively sensitive information among lenders, which can be qualified as anti-competitive practices. Pre-mandate and post-mandate market soundings need to be carefully managed to avoid such risks.

The financial sector, including private credit, is under constant scrutiny by competition authorities (including the European Commission and the French Competition Authority), with no special exemptions.

The common structure used in private credit transactions involve a French holding company to which the private credit funds are made available through bonds issued by it and subscribed by one or several private credit funds. The borrowing entity then secures the service of the bonds by granting security over its assets (shares in its subsidiaries, bank accounts and intragroup receivables).

Under the French banking monopoly, private credit providers are not authorised to provide revolving facilities and delayed draw facilities in France. Usually, RCFs are structured under the terms of a super senior RCF made available by licensed lending institutions.

The making available of super senior RCF by licensed lending institutions makes it necessary to structure the relationships between the private debt bondholders and credit institutions under the terms of a specific intercreditor agreement which, in particular, deals with the enforcement of security and allocation of enforcement proceeds between the two ranges of creditors.

One particular feature of the French market is that, due to the “banking monopoly” restrictions, private debt providers cannot make or commit to make loans available to borrowers incorporated in France) unless they have obtained the necessary licence, which a few of them have). Consequently, mezzanine debt, unitranche debt and, more generally, any debt to be underwritten or made available by such private credit providers must take the form of a bond instrument rather than that of a loan. French obligations are governed by a set of mandatory provisions enshrined in the French commercial code, which, in a number of respects, substantially differ from what a lender would expect to find in a loan facility agreement.

Historically, these obstacles were addressed by structuring the bond issuance as an international issuance where available, or by resorting to the use of English law notes documentation in lieu of the traditional French law bonds documentation, which allowed, to some extent, to build some of the features that could not find their way into French law bonds terms and conditions. In October 2017, France also simplified certain features of the existing bonds regime and adopted a new derogatory regime for bonds issuances subscribed by professional investors (know as the “retail” regime) which allows issuers and investors to cherry pick between elements of the traditional regime and more contractual freedom, in essence bringing loan documentation and bond documentation closer than ever.

Such bond documentation has historically taken the form of subscription agreements, terms and conditions for bonds and usual intercreditor and security documents. It has now become fairly common to merge subscription agreements and terms and conditions into a bonds facilities agreement, making it even closer to loan documentation. These agreements generally follow the format of the latest English law LMA format for leverage transactions adapted to the French specificities in terms of bonds regulation, except for smaller transactions where specific French law and French language precedents are used.

Despite this, the product is still described as unitranche/unirate; the US style AAL model has not developed in France. Instead, senior and junior private credit financing would still enter into a traditional intercreditor agreement.

Since 2018, there have been a handful of first loss/second loss transactions, but this is no longer a trend that is noticed in France given the requirement for efficiency in private credit transactions, with the exception of a few recent examples in small-cap transactions. There have been a few attempts of partnerships between certain private credit providers and banks, which have not been successful. 

It is more common to see structures with super senior RCF provided by banks under a separate credit agreement at the level of the issuer with usual super senior intercreditor arrangements or structurally senior RCF baskets included in the documents. For super senior revolving facilities, the French market also uses the corresponding LMA forms.

As mentioned in 2.1 Licensing and Regulatory Approval, under the French banking monopoly principle, no person other than a credit establishment (licensed lending institution) is allowed to carry on banking transactions in France on a habitual basis.

As a result, private debt lenders, whether French or foreigners, are not entitled to make loans available to French borrowers, and make their funds available through an issue of bonds, unless they benefit from a specific exemption to be transferred participations under the relevant financing.

Regarding collateral, there is no restriction for foreign debt lenders to take the benefit of security over assets located in France.

There are no particular restrictions that differ from those imposed on other types of acquisition financing (eg, financial assistance, corporate benefit, misuse of corporate assets, etc). When it comes to take private transactions, the only real obstacle is a practical one, linked to the potential need to be able to mobilise additional committed funding on a daily basis to settle tendered shares. Therefore, unless the take private transaction features a centralised purchase settlement process, the delays for mobilising funds in a private credit lender are simply not compatible with daily funding requirements. However, the authors have seen a number of transactions where a short-term bank facility (such as an overdraft) served as a bridge to a medium-term private debt financing component.

Another obstacle, of a legal nature, is that the sponsor bank (banque présentatrice) of the take private offer is required by law to guarantee to the holders of targeted shares – or other securities – that they will be paid their purchase price in the event that they contribute such securities to the offer, whether voluntarily or pursuant to any mandatory squeeze-out mechanism. Generally, the sponsor bank will obtain a counter-guarantee from the acquisition finance providers, but a debt fund would not be permitted to provide such a guarantee (due to the banking monopoly restrictions mentioned earlier). In practice however, the sponsor bank would generally resort to obtaining collateral directly from the offeror.

Debt buybacks by the sponsor (but not the borrower) are permitted in France in private credit transactions, hence the willingness for private credit funds to limit such ability (through a maximum threshold) in order not to have to deal with the sponsor, acting as creditor, in an insolvency scenario).

See comments in 3.2 Key Documentation on the 2017 reform (the retail regime). Certain recent changes to legal documentation have raised concerns amongst certain practitioners and scholars with respect to the potential misapplication of certain mandatory rules governing bonds and implied risks of requalification.

See 1.5 Junior and Hybrid Capital for our general remarks on junior and hybrid capital.

In addition, private debt providers often take a minority equity stake in private debt transactions through dedicated sponsor-controlled investment vehicles. Depending on the capital structure, this may require particular attention to avoid tax issues.

Preferred equity instruments are not seen in leverage finance transactions, but are sometimes used for fund financings, for example.

PIK private debt is common in France, provided that that the relevant interest is due at least for an entire year, which is a legal requirement under Article 1343-2 of the French Civil Code. When the terms and conditions of the relevant bonds provide for both cash and PIK interest, it is usual that those terms and conditions provide for a PIK toggle right to the benefit of the borrowing entity.

Private credit providers in France do not typically require amortisation, Debt is usually bullet and due in full on the termination date, to ease the management of cash by the group.

Over the years, the standard call protection has reduced in length and currently stands anywhere between 12 to 18 months with make-whole provisions for the initial 12 months and a fixed percentage thereafter.

Interest payments are not subject to withholding tax to the extent such payments are not made to a non-cooperative country/territory within the meaning of French tax law. Otherwise, withholding tax applies at a rate of 75%.

Sums corresponding to repayments of principal are not subject to withholding tax.

A 25% withholding tax may be levied on fees payments, to the extent that those fees remunerate services provided by a non-resident having no fixed office in France. In case of withholding tax, the matter is generally dealt with (i) through double-tax treaties (provided that the recipient is entitled to the benefits of the relevant tax treaty) or (ii) through the legal documentation (eg, gross-up provisions).

Fees remunerating financial services provided by lenders are generally exempt from VAT.

Where a lender holds a direct stake in the borrowing entity, interest payments may be qualified as deemed dividends for French tax purposes, potentially giving rise to withholding tax issues. Those matters may arise in the context of financial restructurings.

Enforcement of share pledge agreements taken on the shares of the borrowing entity may give rise to transfer taxes where the borrower operates a real estate business.

See 4.1 Withholding Tax.

There are no particular tax incentives available for foreign private credit lenders lending into France.

Non-bank lenders may be deprived of the benefit of double-tax treaties (particularly where the entity lending the funds is not subject to corporate income tax locally). This may trigger withholding tax issues that would be dealt with within the relevant financing documentation.

The typical French security package for private credit transactions involves a single point of enforcement under a securities account pledge agreement pursuant to which the issuer/borrower pledges its shares in its immediate subsidiary (ie, the target in the case of an acquisition) as well as a receivables pledge agreement over intragroup receivables held by the issuer and a bank account pledge agreement by the issuer. The securities account pledge agreement requires a specific account to be opened where distributions will flow; this step is usually completed upon closing but could be postponed to post-closing.

There is no equivalent of a floating charge or other universal or similar security covering all or most of the assets of a company under French law. All private credit providers active in France are now used to taking security by way of separate pledges over the relevant assets. In addition, the French Civil Code recognises the possibility of creating security over future assets provided that they can be sufficiently identified and determined. However, creating security over potential future assets is not allowed.

As described in 5.1 Assets and Forms of Security, the typical security package does not involve any security other than a securities account pledge, a receivables pledge and a bank account pledge granted by the issuer, and private credit is generally not extended to subsidiaries of the issuer given the complexity that it would create in bond documentation. Guarantor coverage is not a feature of French private credit transactions. Therefore, downstream, upstream and cross-stream guarantees are generally not granted in this type of transaction in France.

As a general rule, security proceeds cannot benefit creditors that are not identified beneficiaries of such security interest, but loss-sharing arrangements can always contractually be implemented between the lenders.

As far as the acquisition tranche of a private credit transaction is concerned, financial assistance would apply and prohibit the target from guaranteeing or granting security to secure the relevant tranche.

As far as other tranches, including capex lines are concerned, as mentioned in 5.1 Assets and Forms of Security, the trend is that no security or guarantee is required to be granted by the target.

The provision of guarantees or security by a company carrying out business in France does not automatically require a prior consultation of the works council. However, a case-by-case analysis should be done in order to assess the content and extent of the proposed guarantee or security in order to determine whether or not a prior consultation should be undertaken. Pursuant to Article L2312-8 of the French Labour Code, the works council must be informed and consulted on matters relating to the organisation, management and general business of the company. This Article is usually interpreted broadly by French courts. In addition, the courts tend to consider that any decision that may have a significant impact on the company and on its employees requires a prior consultation of the works council. In the context of any guarantee or security, the implementation of which would have an impact on the general business of the company and potentially affect its employees, the prior consultation of the works council should be considered. Any security granted by shareholders over the shares of the company, the implementation of which may result in a change of control of or by the company over the shares of its subsidiaries would require a prior consultation of the works council pursuant to Article L2312-8 of the French Labour Code. If a prior consultation is required, the works council should provide its opinion before the guarantee or the security is granted. It should be noted that a negative opinion will not prevent the company from taking the decision to grant the relevant guarantee or security. Failure to comply with the above information and consultation obligations can give rise to criminal sanctions against the legal representative of the company. In addition, a judge could decide to suspend the decision taken by the company until the completion of the consultation process.

Hardening periods apply to the granting of security and guarantees in France. The insolvency date, defined as the date when the debtor becomes unable to pay its debts out of its available assets as they fall due, is generally deemed to be the date of the court decision commencing the judicial reorganisation or judicial liquidation proceedings. However, in the decision commencing judicial reorganisation or liquidation proceedings or in a subsequent decision, a court may determine that the insolvency date is an earlier date, up to 18 months prior to the court decision commencing the proceedings. The insolvency date is important because it marks the beginning of the “hardening period”. Certain transactions entered into by the debtor during the hardening period are, by law, void or voidable.

Void transactions include transactions or payments entered into during the hardening period that may constitute voluntary preferences for the benefit of some creditors to the detriment of other creditors. These include transfers of assets for no consideration, contracts under which the reciprocal obligations of the debtor significantly exceed those of the other party, payments of debts not due at the time of payment, payments made other than in the ordinary course of business, security granted for debts previously incurred and provisional measures (unless the right of attachment or seizure predates the insolvency date), the transfer of any assets or rights to a French law trust arrangement (fiduciary) (unless such transfer is made as a security for a debt incurred at the same time) and any amendment to a French fiduciary that dedicates assets or rights to a guarantee of prior debts.

Voidable transactions include transactions entered into, payments made when due or certain provisional and final attachment measures, in each case, if such actions are taken after the debtor was declared bankrupt and the party dealing with the debtor knew that the debtor was bankrupt.

Transactions relating to the transfer of assets for no consideration are also voidable when carried out during the six-month period prior to the beginning of the hardening period.

Typical forms of security released are very straightforward, as they take the form of a global release letter (usually delivered in the same format as the pay-off letter). This is due to the fact that under French law, a formal release letter is not necessary per se, as the French security documents are automatically released as from the date the liabilities which are secured thereunder are fully repaid.

French law has explicitly recognised the market practice that consisted of creating multiple pledges over the same assets with the enactment of ordinance No 2021–1192 dated 15 September 2021, which confirmed the possibility to create multiple pledges on receivables and securities accounts, the order of priority being governed by the order in which the relevant pledge has been granted.

However, this ranking can be subject to contractual arrangements under the intercreditor agreement. Typically, where a super senior revolving facility is entered into following closing and as a result the super senior creditors benefit from a legal second-ranking security, the proceeds of the first ranking security and lower ranking security can be contractually reallocated to ensure the super seniority of the revolving lenders through the waterfall.

French case law has long recognised the validity and enforceability of arrangements between creditors relating to re-allocation between them of security enforcement proceeds. In addition, over the years and through the many reforms of French insolvency laws, intercreditor arrangements have been given an increasing importance and must be taken into account by the courts if made available to them. Under the current regime, intercreditor arrangements must be considered by the courts in establishing the “classes” of creditors in insolvency proceedings that require the establishment of such classes, which may not however always mean that the court will not disregard certain intercreditor provisions as demonstrated in certain recent cases. Consequently, modern intercreditor agreements for French transactions include certain statements of the parties as to the respective “classes” they should fall into in the event of insolvency proceedings.

If the lender benefits from a first-ranking security, there is no material security interest and/or claim that arises by operation of law or contract that could prime a lender’s security interest.

If the private debt lenders are contractually or structurally subordinated, then negotiations take place to provide them with the best comfort under the usual provisions of the intercreditor agreement (blocking/standstill provisions as far as enforcement of security is concerned, waterfall provisions, loss sharing provisions).

Cash pooling is regularly implemented in private credit transactions, but mostly imposed to be at a level below the issuer to reduce impact of discussions with the relevant creditors in a distressed scenario. Security packages do not generally extend to the bank account used for cash pooling purposes, and in any event, the bank operating the cash pooling would benefit from a legal lien ensuring priority over cash standing to the credit of such account.

As far as hedging is concerned, hedging banks are usually required to accede to the intercreditor agreement to benefit from security. In terms of access to proceeds of security in the waterfall, hedging liabilities in relation to private debt facilities are usually treated pari passu with private debt liabilities and similarly and as the case may be, hedging liabilities in relation to super senior debt will be treated pari passu with super senior revolving lenders.

There are no specific licensing or limitations in the taking or holding of collateral generally.

There are two ways to structure security packages in the French market: either liens are granted directly to each lender and a security agent is appointed to act on their behalf, or the security is held by a security trustee as sole beneficiary of the security. Both regimes are used in the French market (noting that the latter is not as well-used, due to the fact that it has been recently implemented).

If a loan is assigned, security does not need to be retaken. Under French law, security follows the liabilities that it secures, so it is automatically transferred to the relevant transferee.

There is no need for credit lenders to address such limitations.

French collateral can be enforced in respect of bank-secured lenders, provided that the liability that is secured thereunder is due and payable (either after a non-payment event of default or further to an acceleration on the ground of the occurrence of any other event of default).

As detailed in 6.5 Timing and Cost of Enforcement, there are three enforcement options under French law: (i) a court awarding the secured assets to the secured creditor by means of a court order following a valuation by a court-appointed expert (judicial foreclosure), (ii) the sale of the asset by way of a public auction ordered by means of a court order (public auction), and (iii) the secured creditor appropriating the secured asset to itself in accordance with the provisions of the relevant security agreement.

The method that is usually chosen to enforce security in France is the private foreclosure referred to in paragraph (iii) above, which is typically considered as the swiftest process as it allows the parties to agree, under the terms of their security agreement, the terms of the enforcement (in this respect, the time delay to transfer the shares and the name of the valuation expert can be pre-agreed by the parties in the pledge agreement).

However, in case of suspension of payment (cessation des paiements) of the security grantor, any security granted by it would be frozen.

The considerations for non-bank private credit providers are the same as those for credit institutions. The main point is to ensure that the security is not frozen through an insolvency proceeding faced by the security grantor.

The security that is usually enforced is the share pledge granted by the borrower over the shares it holds in its direct subsidiary (ie, the single point of enforcement). To ensure that such security is not frozen by the opening of an insolvency proceeding against the relevant security grantor, some specific structures (double luxco, golden share and double luxco) can be put in place to provide more robustness should a financial restructuring be needed.

Governing Law

In any proceedings taken in France for the enforcement of any contractual obligation, the French courts would give effect to the choice of law of any EU member state according to European Parliament and Council Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations (Rome I) (EC Regulation 593/2008), provided that evidence as to the content of the relevant law is duly adduced, unless French or foreign mandatory rules (lois de police) apply and unless the choice of the relevant law is fraudulent.

The ability to have the financing contract subject to a law which is not the law of an EU country depends on the international convention France has entered into with the country in question.

Recognition and Enforcement of Foreign Judgment

An enforceable and valid judgment for a sum of money rendered by a court of an EU member state will be recognised and enforced by French courts in accordance with the provisions of EC Regulation 44/2001 (1215/2012/EU).

The enforcement in France of a decision rendered by a court which does not belong to an EU member state will not be automatic but will be subject to exequatur before a French judge.

As mentioned in 6.2 Foreign Lay and Jurisdiction, an enforceable and valid judgment for a sum of money rendered by a court of an EU member state will be recognised and enforced by French courts in accordance with the provisions of EC Regulation 44/2001 (1215/2012/EU).

The enforcement in France of a decision rendered by a court which does not belong to an EU member state will not be automatic, but will be subject to exequatur before a French judge.

As in many jurisdictions, France has rules for controlling foreign investments in certain sectors which may impact the ability of any foreign entity to enforce its security over certain assets.

Three enforcement options are generally available: (i) a court awarding the secured assets to the secured creditor by means of a court order following a valuation by a court-appointed expert (judicial foreclosure), (ii) the sale of the asset by way of a public auction ordered by means of a court order (public auction), and (iii) the secured creditor appropriating the secured asset to itself in accordance with the provisions of the relevant security agreement, following notification in writing (mise en demeure) and valuation by an expert appointed by the parties or by the court, save where the value of the secured assets is officially quoted, in which case the recourse to an expert is not required (private foreclosure). Other “self-help” remedies (eg, the secured creditor selling the secured asset privately) are generally prohibited.

Usually, the method that is chosen to enforce security in France is the private foreclosure referred to in paragraph (iii) above, which is typically considered as the swiftest process as it allows the parties to agree, under the terms of their security agreement, the terms of the enforcement (in this respect, the time delay to transfer the shares and the name of the valuation expert can be pre-agreed by the parties in the pledge agreement).

Enforcement of security in France is not subject, in principle, to any mandatory cost, other than the legal costs referred to below. However, certain experts are likely to be mandated for this kind of transaction (valuators, lawyers), so it is hard to predict precisely, in practice, the enforcement cost in an enforcement scenario, which very much varies from one matter to another, on the basis of the parties that are involved. Please note, however that where enforcement is consensual, the costs are minimised.

Enforcement Costs for Shares

Since 1 August 2012, the transfer of shares in an SA and an SAS has been subject to a 0.1% registration duty. However, in the case of listed shares, the duty is due only if the transfer is made by way of a written deed (even if this deed is executed abroad. In the case of shares in a non-listed SA, whose assets consist principally of immoveable property, the transfer attracts a 5% registration duty.

Enforcement Costs for Land and Buildings

The principal costs triggered by the sale by way of auction of a mortgaged real estate depend on the characteristics of the real estate and the size of the operation (ie, costs to draft/obtain various required documents, fees, legal advertising costs, and Land Registry’s fees). Specific advice should be sought.

Enforcement Costs for Intellectual Property

When enforcing security, the beneficiary must pay a nominal fee and when doing so, a registration duty of 5% may in certain cases be payable. These costs apply if intellectual property rights are pledged as part of the business or independently through a specific pledge instrument.

Enforcement Costs for Businesses

When enforcing and selling the business, the beneficiary of the security must pay 5% of its value as a registration fee.

In a market the size of France’s, enforcing security under any circumstance may result in bad press and certain private debt providers have historically seen their reputation negatively affected by taking enforcement measures.

Generally speaking, enforcement over shares would simply put the creditor in a shareholder’s seat and not result in a transfer directly to it of obligations that lie with the company of which it has become a shareholder as a result of enforcement.

Environmental remediation obligations would arise as a result of direct ownership of real estate – which is not relevant to the French acquisition financing market.

The French legal system features (i) two out-of-court “prevention” proceedings (mandat ad hoc and conciliation) (ii) two in-court reorganisation proceedings (sauvegarde and sauvegarde accélérée) and (iii) two in-court insolvency proceedings (redressement judiciaire and liquidation judiciaire).

All in-court proceedings include an automatic stay whereby, as from the date of the court decision commencing the proceedings, the debtor is prohibited from paying debts that arose prior to such date, subject to specified exceptions that essentially cover the set-off of related debts (please see 7.7 Set-Off Rights) and payments authorised by the bankruptcy judge or made to recover assets for which recovery is required for the continued operation of the business. During this period, creditors are prevented from initiating any individual legal action against the debtor with respect to any claim arising prior to the court decision commencing the proceedings if the objective of such legal action is either (i) to obtain an order for payment of a sum of money by the debtor to the creditor (however, the creditor, provided it has filed its claim as stated above, may require that a court determines the amount due) or (ii) to terminate or cancel a contract for non-payment of amounts owed by the creditor.

Creditors are also barred from taking any enforcement action against the debtor (including the enforcement of security interests), except where such enforcement is sought against assets that are located in another European Union member state, in which case the rights in rem of creditors would not be affected by the insolvency proceedings, in accordance with the terms of Article 8 of Council Regulation (EC) No 2015/848 on insolvency proceedings.

As regards guarantees, French insolvency law provides for the protection of the guarantors and co-obligors which benefit from the automatic stay on claims and actions. However, this protection is only applicable to natural persons not legal entities. No protection of guarantors or co-obligors should be available under liquidation proceedings.

As regards out-of-court proceedings, there is no automatic stay, but such a stay may be granted by the court, as part of conciliation proceedings, upon request of the debtor which may file a petition before the President of the Court to ask for (i) the rescheduling of accrued debt over a maximum period of 24 months (“grace period”) and/or (ii) the freezing or rescheduling of the debt to be accrued (ie, undue debt at the date of the petition) during the period of the conciliation proceedings. A guarantor of the debtor may also benefit from any grace period granted by the judge to the debtor.

The debtor remains in possession as part of in-court proceedings, save for liquidation proceedings. One or two judicial administrator(s) (JAs) are appointed by the court at the beginning of the proceedings and will supervise and assist management in preparing a restructuring plan. In rare circumstances, under insolvency proceedings (redressement judiciaire), JAs can be granted with a representation mission and the debtor will not be in possession anymore, and the court-appointed liquidator will organise the disposal of assets.

Debtor-in-possession (DIP) financing is possible subject to the prior approval of the supervisory judge and the lenders are entitled to a privileged ranking for the repayment of the financing.

As part of out-of-court proceedings, a mediator (mandataire ad hoc or conciliator) is appointed by the President of the Court at the request of the debtor, but is not granted any coercive powers. The debtor remains in possession.

The purpose of in-court proceedings (save for liquidation proceedings) is to reorganise the debtor through the agreement of a continuation plan. Such plan is prepared by the debtor with the assistance of the JA and may provide for debt restructuring (rescheduling, debtor write-off) or capital reorganisation (including by way of debt-for-equity swap). Most plans will be submitted for the prior approval of creditors within the framework of classes of affected parties, which will be constituted by the JA. Creditors sharing a sufficient community of interests will be gathered in the same class and should benefit from equal treatment under the plan. In addition, to constitute classes, the JA has to take into consideration existing subordination agreements and security packages (eg, creditors secured by security interest in rem are gathered into separate class(es) and there are likely to be separate classes for preferential creditors and strategic suppliers). Certain claims such as those arising from employment contracts or those secured by a fiducie cannot be affected by a restructuring plan. Claims secured by a new money or rescue money privilege cannot be subject to a debt write-off or debt rescheduling which has not been accepted.

Should no viable continuation plan be presented, the JA could be empowered by the court to organise the sale of the company’s business as a going concern following a tender bid process. Thus, creditors would be repaid upon the allocation of the proceeds of the sale of the bankrupt debtor’s assets.

In such event, creditors must be repaid accord to statutory order of priority with certain preferred creditors taking priority: certain salary payments, court fees, new-money financings (provided in the context of conciliation proceedings and approved by the court), and post-petition debts and rescue finance are paid in priority to all other debts whether secured or unsecured.

The same ranking would also apply to the allocation of the proceeds of the assets sold on a piecemeal basis under liquidation proceedings if no solution is provided as part of the tender bid process.

Accelerated safeguard proceedings are opened for a maximum of four months (opening of conciliation proceedings which can last up to five months is a prerequisite (please see 7.4 Rescue or Reorganisation Procedures Other Than Insolvency for a more detailed presentation of conciliation proceedings).

Safeguard proceedings are opened for a maximum of 12 months and insolvency proceedings (redressement judiciaire) are opened for a maximum of 18 months. There is no maximum duration by law for liquidation proceedings (in the authors’ experience, an average of 18 to 36 months depending on the difficulty of the case).

The aim of the French system is to facilitate consensual restructurings negotiated as part of out-of-court proceedings, enabling the debtor company to preserve its value, hence maximising recovery for creditors. In addition, please note that historically, French insolvency law has been known to be borrower friendly, but legislative updates (2021 Reform) promote a more balanced rescue culture in France with the availability of the accelerated safeguard proceedings which are designed to offer a streamlined rescue mechanism, without the unanimous consent of all creditors (please see 7.9 Dissenting Lenders and Non-Consensual Restructurings regarding implementation of potential cram-down of dissenting lenders).

Creditors’ chances of recovery would be drastically reduced if no amicable solution is found as part of out-of-court/safeguard proceedings or if the debtor company delayed filing a petition for the opening of such proceedings and is therefore compelled to file for insolvency proceedings (redressement judiciaire or liquidation judiciaire).

The two consensual options available under the French legal system are mandat ad hoc and conciliation proceedings, each of them having the advantage of being entirely confidential by law. They are very flexible, opened upon the sole initiative of the debtor and can be used by companies facing difficulties for a variety of reasons and purposes. They are consensual: discussions are held under the aegis of a mediator (mandataire ad hoc or conciliator), appointed by the President of the Court, and no creditor can be forced into a restructuring agreement.

In practice, mandat ad hoc proceedings are used by debtors at an early stage since debtors must not be in “a state of cessation of payments” (état de cessation des paiements). Mandat ad hoc proceedings are not limited in time, and when a consensual agreement is reached, it is reported to the President of the Court, but it is not formally approved by the court.

Likewise, conciliation proceedings may only be initiated if the debtor is not in a state of cessation of payments or has not been so for more than 45 calendar days. These proceedings may last up to five months.

When an agreement is reached during the course of the conciliation, it may be acknowledged (constaté) by the President of the Court, in which case the proceedings remain fully confidential. Alternatively, the conciliation agreement may be approved (homologué) by the court. Such approval will be made public, but the agreement itself remains confidential. New money providers may benefit from a priority of payment and may not be compromised in a restructuring plan in the event of subsequent insolvency proceedings. In addition, in the event of subsequent insolvency proceedings, claw-back risk is mitigated where a conciliation agreement has been homologated by the court.

See 7.1 Impact of Insolvency Processes on the general stay applied to the enforcement of collateral.

Contractual provisions such as those customarily contained in credit facility agreements that would accelerate the payment of the debtor’s obligations upon the occurrence of certain insolvency events are not enforceable under French law. The opening of liquidation judiciaire proceedings generally automatically accelerates the maturity of all of the debtor’s obligations, however, the court may allow the business to continue for a period of no more than three months (renewable once for another three months) if it considers that a sale of part or all of the business is possible, in which case the debtor’s obligations are deemed to mature on the earlier of the day on which the court approves the sale of the business and the end of the period during which the court had allowed the business to continue.

Please note that there is no concept of adequate protection under French bankruptcy law.

The insolvency date (defined as the date when the debtor becomes “in cessation of payments”) is generally deemed to be the date of the court decision commencing the insolvency proceedings (redressement judiciaire or liquidation judiciaire). However, in the decision commencing such proceedings or in a subsequent decision, a court may determine that the insolvency date is an earlier date, up to 18 months prior to the court decision commencing the proceedings. The insolvency date is important because it marks the beginning of the so-called “claw-back period” and certain transactions entered into by the debtor or payment or transfer of rights over assets made by the debtor during such period are, by law, void or voidable.

Void transactions include transactions or payments entered into during the claw-back period that may constitute voluntary preferences for the benefit of some creditors to the detriment of other creditors. These include transfers of assets for no consideration, contracts under which the reciprocal obligations of the debtor significantly exceed those of the other party, payments of debts not due at the time of payment, payments made other than in the ordinary course of business, security granted for debts previously incurred and provisional measures (unless the right of attachment or seizure predates the insolvency date), stock options granted or exercised during the claw-back period, the transfer of any assets or rights to a French law trust arrangement (fiduciary) (unless such transfer is made as a security for a debt incurred at the same time) and any amendment to a French fiduciary that dedicates assets or rights to a guarantee of prior debts.

Voidable transactions include transactions entered into, payments made when due or certain provisional and final attachment measures, in each case, if such actions are taken after the debtor was declared insolvent and the party dealing with the debtor knew that the debtor was insolvent.

A request may be submitted to the court mainly by the JA, the creditors’ representative or the public prosecutor.

Set-off is possible where debts are mutual and have a common “nexus” (eg, they arise from the same contract or group of contracts). Insolvency proceedings are not an obstacle to closing out or netting financial instruments. 

As indicated above, both mandat ad hoc and conciliation proceedings are of a consensual nature: any agreement between the debtor and its creditors is negotiated on a voluntary basis and those creditors not willing to take part cannot be bound by the agreement or forced to accept it. They are also confidential proceedings, with no public records being made, and therefore are likely not to be known by day-to-day business partners of the debtor not being parties to the proceedings. 

In practice, once an agreement is reached in the context of mandat ad hoc, the parties may often convert it into a conciliation to have the long form documentation approved by the court and to obtain a recognition by the court that the debtor was not insolvent at that time – this provides substantial comfort, typically in the event that voidable transactions were implemented as part of the agreement between the debtor and its creditors. However, this court “stamping” (known as homologation) lifts the confidentiality.

There is no mandatory co-operation principle at play in either of these proceedings. That being said (and depending perhaps on the personality of the mandataire or conciliateur), creditors and/or shareholders will generally participate in such proceedings when called to do so.

As mentioned in 7.8 Out-of-Court v In-Cort Enforcement, no creditors can be forced into a restructuring as part of out-of-court proceedings.

When no unanimous deal is found during the conciliation, the debtor can decide to file for in-court proceedings (generally accelerated safeguard proceedings which are designed to offer a streamlined rescue mechanism)  to present a plan where, upon certain conditions, a cross-class cram-down of dissenting creditors can be implemented.

Constitutions of classes of affected parties are systematic under accelerated safeguard and only mandatory in safeguard and insolvency proceedings (redressement judiciaire) for large companies (and their holdings and subsidiaries) – ie, more than (i) 250 employees and EUR20 million turnover or (ii) EUR40 million turnover.

To be adopted, the plan must be approved by a two-third majority vote within each class (only parties affected by the draft restructuring plan may be included in the classes (including equity holders/shareholders if the company’s share capital, the articles of association or their rights are altered by the draft restructuring plan)).

After the restructuring plan has been adopted with a two-thirds majority vote within each class, the plan must be approved by the court. Before rendering its decision, the court verifies that the overall process has been conducted in accordance with applicable rules. The court also verifies several conditions, such as that individual dissenting creditors are no worse off than in a liquidation scenario (best interests of creditors test) and that any new funding granted to the company under the plan is necessary to implement the plan and does not excessively impact the interests of affected parties.

The plan can be imposed by the court on dissenting classes (cross-class cram-down) where the two-thirds majorities have not been met, provided several additional conditions are met:

• the restructuring plan has been approved by: (i) a majority of the classes of affected parties, provided that at least one of those classes is secured or senior to ordinary unsecured creditors or (ii) at least one of the classes of affected parties other than an equity holders’ class is “in the money” (eventually upon a valuation of the company); and
• the restructuring plan must comply with the absolute priority rule (ie, dissenting senior creditors must be fully repaid when a junior ranking class is entitled to be paid or retains an interest).

In case of classes’ unfavourable votes, the court can also decide to impose a ten-year term-out where the debtor is in insolvency proceedings (redressement judiciaire) or where the debtor is in regular safeguard and no classes have been constituted. Term-out is not possible for debtors in accelerated safeguard in case of classes’ unfavourable votes.

Prepacked restructuring plans would be implemented as part of conciliation proceedings (up to a maximum of five months) followed by accelerated safeguard proceedings (up to a maximum of four months) where cram-down might be used against dissenting creditors as explained above. Accelerated safeguard proceedings are aimed at restructuring and reorganising capital structures of distressed companies when no unanimous agreement was possible during previous conciliation proceedings but could however be implemented by way of a restructuring plan. Accelerated safeguard proceedings are available to companies regardless of their size, and the debtor remains in possession. To be eligible for accelerated safeguard proceedings, companies need to (i) be engaged in a conciliation procedure, and (ii) have drawn up a draft restructuring plan that is likely to receive sufficient support from the relevant affected parties to make its adoption plausible within the maximum duration of accelerated safeguard proceedings. The restructuring plan is presented by the management to financial creditors only or all affected parties in classes. The court will approve the implementation of the plan pursuant to the conditions mentioned in 7.9 Dissenting Lenders and Non-Consensual Restructurings.

Should the restructuring be more focused on operational considerations, confidential conciliation proceedings may be used to prepare a sale of the business as a going concern, which may be implemented in the context of further insolvency proceedings.

Please find below a list of well-known recent matters on which the authors worked.

• Advising Tikehau in connection with the financing of the acquisition of Domia Shiva by Cinven.
• Advising Ares in connection with the financing of the acquisition of Chrystal by Goldman Sachs.
• Advising Pricoa in connection with the unitranche financing of the acquisition of Kandelium by Latour Capital.
• Advising Five Arrows in connection with the unitranche financing of the acquisition of KeyedIn Solutions by STG Partners.
• Advising Tikehau and BPIFrance in connection with the unitranche financing for the Odyssey Group.
• Advising Tikehau and Eurazeo in connection with the acquisition financing by Ardian of Artefact.
• Advising Apera Asset Management in connection with the unitranche financing to Ethyx Pharmaceuticals.
• Advising Eurazeo in relation to the unitranche refinancing and build-up financing of 52, owned by HLD.
• Advising Bridgepoint and Cerea in relation to the unitranche refinancing and build up financing of Olmix, owned by Motion Equity Partners.

What has been learned from recent private credit transactions is that private debt funds are becoming increasingly involved in bid processes, offering very competitive pricing in comparison to the syndicated loan market, with underwriting fees at 2%, margins at 5% (and even 4.75%), and no flex, plus greater flexibility on leverage and covenants.

Banks like BNPP, Natixis, and CACIB are seen to be developing their own private debt vehicles.

There has also been an increase in the number of NAV financings, including to the benefit of private debt vehicles (key NAV providers in France include JP Morgan, Natixis, and 17Capital).

As far as documentation is concerned, special attention is given to the amendment and waiver clauses, stricter covenants regarding release of security, disposal of assets and incurrence of super senior debt.

Lenders and borrowers will apply the insights gained from case studies as appropriate to their business circumstances.