FRANCE Law and Practice Contributed by: Fernand Arsanios, Delphine Guillotte, Guillaume Chaboureau, Houda Idaroussi and El Sayegh, King & Spalding
1.5 Banking and Finance Techniques Extended holding periods (averaging six to seven years) are driving private equity sponsors to tailored liquidity solutions – such as partial exits, cross- fund deals, continuation funds, and net asset value financing. Also, a hybrid instrument combining equity (minority or majority) and mezzanine financing – flex equity – has gained traction, providing a tailored risk- return profile and partial exit strategies. 1.6 ESG/Sustainability-Linked Lending There have been several notable developments in ESG and sustainability-linked lending (SLL) in France recently, reflecting both regulatory momentum and market innovation. France continues to align closely with EU-level legislation, including the EU Taxonomy, the SFDR (Sustainable Finance Disclosure Regulation) and the CSRD (Corporate Sustainability Reporting Directive). French financial institutions are increasingly required to disclose ESG risks, integrate sustainabil- ity criteria into credit decisions, and report on green asset ratios. SLLs are gaining traction across sectors, especially in infrastructure, real estate, and industrials. French corporates are actively using SLLs to signal ESG com- mitment and access favourable pricing. ESG-linked structures are now common in private credit, particu- larly in mid-market deals. Green loans are being used to finance specific envi- ronmentally beneficial projects (eg, renewable energy, clean transport). 2. Authorisation 2.1 Providing Financing to a Company Entering into credit transactions on a regular basis with companies established in France is reserved to (i) entities licensed as credit institutions ( établissements de crédit ) or financing companies ( sociétés de finance - ment ) by the French Autorité de Contrôle Prudentiel et de Résolution, or ACPR; or (ii) entities licensed in another member of the European Economic Area pro- vided that they comply with the European passport procedure described under the 2013/36/EU Directive
(see 3.1 Restrictions on Foreign Lenders Providing Loans ) – ie, the “French banking monopoly” rules. Credit transactions include the granting for consid- eration of loans (or a commitment to grant loans) as well as the purchase of non-matured receivables, but exclude bond subscriptions. Any breach of this pro- hibition is subject to criminal penalties of three years’ imprisonment and/or a fine of EUR375,000. In France, the authorisation procedure for credit insti- tutions is overseen by the Autorité de contrôle pruden- tiel et de résolution. An application should include a detailed business plan outlining the services intended to be provided, the institution’s Articles of Associa- tion, the identity of effective managers and significant shareholders, human, technical and financial resourc- es, governance arrangements (compliance, risk man- agement, internal control), and initial capital. However, certain exemptions apply. Notably (i) spe- cific French law alternative investment funds, which are allowed to have direct lending activities; and (ii) foreign entities or institutions whose purpose or activi- ties are comparable to those of French credit institu- tions. These are permitted to purchase non-matured receivables arising from credit transactions entered into by licensed credit institutions, financing compa- nies or certain types of alternative investment funds within the context of the transfer of funded participa- tions as part of a primary or secondary syndication. 3. Structuring and Documentation 3.1 Restrictions on Foreign Lenders Providing Loans The French banking monopoly rules referred to in 2.1 Providing Financing to a Company apply to both domestic and foreign lenders. Two exceptions to the French banking monopoly apply when financing is provided by foreign lenders, as follows: • the financing is structured as a bond issue sub- scribed to by foreign lenders; or
144 CHAMBERS.COM
Powered by FlippingBook