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COVID 19: Key features of the French State guarantee scheme for banking loans

09/04/20

Legal e-Alert

In the context of the growing COVID 19 pandemic, the French government announced a wide range of measures aiming at supporting businesses throughout the crisis, with a view to mitigating its economic impacts.

One of the emblematic measures of these emergency policies is the EUR 300 billion state guarantee scheme for new loans granted by financial institutions to certain French businesses (the “Scheme”). This measure results from a decision taken on March 16th at the European level to grant EUR 1,000 billion guarantees from the Member States of the euro zone for bank loans to ensure cash flow for the economy in the Euro Zone.

The eligibility criteria, applicable conditions and procedure in place to benefit from the scheme are set out in a law amending the 2020 Finance Act, dated 23 March 2020 (the "Law") and further specified in a decree of 23 March 2020 (the “Decree"). The French public bank Bpifrance Financement SA (“Bpifrance”) is vested with the administration of the scheme on behalf of the French State.

The purpose of this Alert is to provide an overview of the key features of this new Scheme.

Eligible borrowers

  • Non-financial companies registered in France, regardless of their size or legal form, are eligible.
  • Real estate partnerships (sociétés civiles immobilières), credit institutions and other financial institutions are not eligible.
  • Companies must not be subject to collective proceedings (safeguard, rehabilitation or liquidation) at the time the loan is granted. However, companies which are subject to preventive conciliation-type proceedings are eligible.

Eligible loans

  • The loans must have been granted between 16 March 2020 and 31 December 2020.
  • They should include no principal repayment for at least one year (i.e. for at least 12 months, only payment of interest shall be made by the borrower to the bank).
  • The loans should include a contractual clause providing the borrower with the option to decide, at the end of the first year, to amortize the loan over an additional period of 1 to 5 years.
  • The maximum amount that can be made available to a borrower (in one or several loans, from one or several banks) under the Scheme cannot exceed the following caps:

- General Case: 25% of the 2019 total revenue of the borrower, if known, or of the total revenue of the borrower’s last available financial year;

- Specific Cases: (i) Innovative companies (i.e. meeting at least one of the criteria set in paragraph II of Article D. 313-45-1 of the French Code for the Entry and Residence of Foreigners and Right of Asylum): up to twice the total payroll (for France) amount for 2019, if such a cap is more favorable to the company than the general cap mentioned above; and (ii) Legal entities set up as from 1 January 2019: the estimated amount of the total payroll (for France) for the first two years of business activity.

  • Eligible loans must not be secured nor guaranteed by any other security interests or guarantees.
  • A simple refinancing of an existing loan, without an increase in the lender’s commitment as compared to its commitment toward the borrower existing as at 16 March 2020, only to benefit from the State guarantee, should not be eligible under the Scheme.

The loan agreement may provide for a "safeguard clause" under which repayment would become immediately due in the event of detection, after the loan has been granted, of non-compliance with the criteria set out above, in particular as a result of incorrect information given by the borrower.

Main features of the state guarantee

  • The guarantee is exclusive of any other security or guarantee
  • The guarantee does not cover the entire loan, but a percentage of the loan, depending on the size of the borrower:

- 90% for companies with less than 5,000 employees and total revenues of less than EUR 1.5 billion in the last financial year (or if they have never closed a financial year on 16 March 2019),

- 80% for other companies with total revenues of more than 1.5 billion euros but lower than 5 billion euros in the last financial year

- 70% for other companies.

  • The indemnifiable base to which the percentages above will apply corresponds to the loss recorded by the lender as a result of the occurrence of a credit event, defined as the out-of-court or judicial restructuring of the loan or in relation to the borrower’s insolvency proceedings, and after possible amicable or court-based credit collection steps. The Decree provides the following guidelines to determine the indemnifiable amount:

- Credit event in relation to a restructuring of the loan: the indemnifiable amount will be determined after taking into account the value of the remaining claim held by the lender further to the restructuring;

- Credit event in relation to insolvency proceedings: the indemnifiable amount will be determined at the end of the insolvency process, taking into account amounts collected by the lender.

  • A guarantee fee, ranging from 50 basis points to 200 basis points per year depending on the size of the borrower as well as the maturity of the loan, shall be payable to the State by the borrower.

Procedure in place

  • As far as larger borrowers (with total revenues in excess of EUR 1.5 billion and minimum 5,000 employees) are concerned, the application for the State guarantee will be reviewed by the French Treasury and granted by a specific decision of the Ministry of Economy and Finance, on a case-by-case basis.

Other borrowers, after obtaining their bank(s) pre-approval for the granting of a loan meeting all the eligibility conditions of the Scheme, will have to obtain a username certificate from Bpifrance by filling in the information requested on the following website: https://attestation-pge.bpifrance.fr/description. The borrower shall, in turn, provide that username certificate to the relevant lenders before they can finalize the financing and make the funds available to the borrower.

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