UPDATED – COVID-19 FRANCE: STATE GUARANTEE SCHEME FOR NEW MONEY LOANS
Created 1 April 2020 – Updated 10 April – Last update 19 May 2020
In light of the growing pandemic of COVID-19, the French government has made a number of unprecedented decisions in order to support business activities. Among an extensive panoply of measures relating to short-time work, tax relief, capital markets and other areas, the French Government has introduced a EUR 300 billion State guarantee scheme (the “Scheme”) for new money loans to be granted to French entities by financial institutions and crowd-funding intermediaries.
The conditions and eligibility criteria to benefit from the Scheme have been defined in a law of 23 March 2020, amending the 2020 finance act (law n°.2020-289 of 23 March 2020 ), as amended on 25 April 2020, and in a decree of the French Economy and Finance Minister (arrêté du 23 mars 2020, JORF n° 0072 du 24 mars 2020 ), itself as amended on 17 April, 2 May and 6 May 2020 (the “Decree”).
Below are the main features of the Scheme:
Eligibility Criteria Relating to the Borrower
- Legal entities as well as natural persons, associations or foundations having an economic activity and duly registered with a French trade and companies register (i.e., able to provide the related SIRENE identification number). However, indirectly, after the funds have been made available to an eligible French borrower, those funds could flow within the group and therefore benefit foreign entities. That being said, the loan agreement may contain clauses restricting such flow, and it is expected that the funds be used by the borrower to protect its operations and employment in France.
- The following entities are excluded from the scope of the Scheme:
- civil real estate companies (sociétés civiles immobilières ), except for:
- construction-sale civil real estate companies (sociétés civiles immobilières de construction-vente ),
- civil real estate companies whose assets are mainly composed of classified or registered historical monuments and which collect revenue related to the reception of the public, and
- civil real estate companies whose capital is wholly owned by collective real estate investment undertakings (organismes de placement collectif immobilier ), by civil real estate investment companies (sociétés civiles de placement immobilier ) or by collective real estate investment professional undertakings (organismes professionnels de placement collectif immobilier ),
- credit institutions and financing companies (établissements de credit and sociétés de financement ), and
- distressed companies which, on 31 December 2019, were already subject to liquidation, rehabilitation or safeguard proceedings; unless such companies were, in the cases of rehabilitation and safeguard, in the process of implementing a restructuring plan sanctioned by the court.
Eligibility Criteria Relating to the Lender
- Eligible loans must be granted by credit institutions (établissements de crédit ), financing companies (sociétés de financement ) or eligible lenders acting through crowd-funding intermediaries (intermédiaires en financement participatif ) as mentioned in Article L. 548-1 of the French Monetary and Financial Code. They may be granted under the form of bilateral, syndicated or “club deal” loans. The interest rate charged with respect to the loans will be equal to the refinancing cost of the relevant lender (no margin shall be applicable), but a State guarantee fee shall be applicable (see below).
- French lenders as well as foreign lenders (subject to French banking monopoly rules) may benefit from the State guarantee, e.g., EU banking institutions lending into France on the basis of their “passport” should be eligible.
- The State guarantee, which is irrevocable, is available to the credit institutions, financing companies or crowd-funding lenders that are granting the loans. It cannot benefit other entities. In the event where a qualifying loan would be transferred, the State guarantee would terminate, unless such transfer would be made to an affiliate within the same banking group.
- Credits under the form of bonds (obligations ) are not eligible to the Scheme.
Eligibility Criteria Relating to the Loan
The Scheme is only available for loans granted between 16 March 2020 and 31 December 2020, i.e., they must be new loans.
Eligible loans must not be secured nor guaranteed by any other security interests or guarantees. However, for larger companies for which the State guarantee will only apply up to 70% or 80% of the loan amount (see below), the remaining 30% or 20% can be secured.
Maximum Amount per Borrower:
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:
- Innovative companies (i.e. within the meaning of Article 44 sexies-0 A of the French General Tax Code or 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
- Legal entities created from 1 January 2019: the estimated amount of the total payroll (for France) for the first two years of business activity.
Repayment and Amortization:
Eligible loans must:
- 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); and
- 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, 2, 3, 4 or 5 years.
Increase in Lender’s Commitments:
Eligible loans must lead to an increase in the lender’s commitment, as compared to its commitment toward the borrower existing as at 16 March 2020 (i.e., a euro-for-euro refinancing only to benefit from the State guarantee should not be eligible under the Scheme).
State Guarantee Features
- The State guarantee cannot be enforced by the lenders if a “credit event” (that would be a default by the borrower) occurs within the first two months of the loan disbursement.
- The State guarantee covers outstanding principal, interest and accessories but only up to:
- 90% for companies with fewer than 5,000 employees and total revenue of less than EUR 1.5 billion in the last financial year;
- 80% for companies with total revenue exceeding EUR 1.5 billion but lower than EUR 5 billion in the last financial year; and
- 70% for other companies.
- A guarantee fee, ranging from 25 basis points to 200 basis points per year depending upon the size of the borrower as well as the maturity of the loan, shall be payable to the State by the borrower.
- While the State guarantee is a “final loss” guarantee, in the event of a payment default by the borrower, lenders are entitled to request and obtain from Bpifrance Financement SA, acting on behalf of the State, within 90 days from such request, a provisional payment based upon an estimate of the lenders’ likely loss, which payment shall be adjusted, upward or downward, once the final loss amount is ascertained.
Governance of the Scheme
Bpifrance Financement SA, a public bank, is vested with the administration of the Scheme on behalf of the State. As such, Bpifrance Financement SA’s tasks will include (i) monitoring the outstanding guaranteed amounts for each loan granted under the Scheme, (ii) collecting the guarantee fees and repaying the same to the State, (iii) verifying that the conditions set out in the Decree are met, in the event of a call under the guarantee, and (iv) paying under the guarantee.
Steps for the Granting of the Loan
Steps With Respect to Entities With Fewer Than 5,000 Employees and Total Revenue Below EUR 1.5 billion:
After obtaining its bank(s) pre-approval for the granting of a loan meeting all the eligibility conditions of the Scheme, the borrower must obtain a username certificate from Bpifrance Financement SA 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.
In cases where Bpifrance Financement SA is notified that several loans are to be granted to the same borrower, the State guarantee will be acquired in the chronological order in which these loans are granted, provided that their cumulative amount remains below the applicable cap. Until the end of April 2020, only one application per entity is possible.
Steps for Larger Companies:
For companies with more than 5,000 employees or total revenue exceeding EUR 1.5 billion for their last financial year, and otherwise meeting the eligibility criteria to benefit from the Scheme, 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.
Further clarifications regarding the Scheme eligibility criteria should be available in the coming weeks and we will update this memorandum as necessary.