FRANCE Trends and Developments Contributed by: Fernand Arsanios, Delphine Guillotte, Guillaume Chaboureau and Houda Idaroussi, King & Spalding
King & Spalding 48 bis rue de Monceau 75008 Paris France Tel: +33 1 7300 3900 Email: lbensaid@kslaw.com Web: www.kslaw.com
France’s banking and finance sector entered 2025 with cautious optimism, but that sentiment was quick- ly tested by renewed domestic political instability. The removal of the country’s prime minister in Septem- ber 2025 created institutional uncertainty, particularly given the absence of clarity around the composition of the next government and the content of the forthcom- ing finance law. The lack of visibility unsettled mar- kets and prompted banks, sponsors and institutional investors to reassess their plans and adopt a more defensive stance. This internal shock coincided with a broader climate of geopolitical and macroeconomic disquiet. Unclear US trade policy, rising tariffs, and the economic fallout of conflicts in Ukraine and the Middle East created external pressures that weighed on global trade and export performance. While France was not immune to these developments, its relatively lower exposure to US demand meant that it was less directly affected than many of its European peers – a factor that helped cushion the impact on its economy. In this unsettled environment, business investment remained subdued, as companies have adopted a wait-and-see approach. While the headline figure of corporate bankruptcies cresting to a new high in 2025 justifies this caution, the easing pace of these failures hints at a stabilising undercurrent. This nas- cent resilience is reflected in capital spending, which, though still subdued, has declined less sharply than in 2024, buoyed by more favourable financing condi- tions, easing monetary policy, and improving market liquidity. These factors supported a gradual revival of lending and investment, even as the timing and extent
of further rate moves remained unclear. Underwriting standards have continued to reflect caution, particu- larly around refinancing and exit prospects. Faced with constrained exit markets and heightened uncertainty, private equity managers and other market participants increasingly turned to alternative liquidity tools – hybrid financings, co-lending arrangements, NAV and continuation structures, and tailored mez- zanine solutions – to bridge timing gaps without forc- ing distressed sales. Financial institutions have proved largely resilient, supported by recent profitability improvements and diversified business models, yet they monitored asset-quality trends closely. The stra- tegic response in 2025 has therefore combined pru- dent risk calibration with creative structuring: broaden the pool of capital providers, design flexible deal terms that preserved optionality, and channel financing into priority growth areas such as energy and digital while keeping capital and sustainability considerations cen- tral to underwriting decisions. Beyond the Syndicate: Alternative Lenders and Direct Lending The past year has reinforced the central role of alter- native lenders in supplying term capital for sponsor activity. Private debt managers, insurance-sponsored credit vehicles and specialist direct-lending platforms continued to underwrite unitranche packages, sub- ordinated instruments and bespoke covenant pro- files that sponsors used to close transactions quickly where syndicated bank markets were not available. At the same time, banks have re-entered sponsor lending with new business models. Major institutions
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