FRANCE Trends and Developments Contributed by: Fernand Arsanios, Delphine Guillotte, Guillaume Chaboureau and Houda Idaroussi, King & Spalding
launched private-credit divisions, rolled out managed- account propositions and concluded co-lending or joint-venture arrangements with specialist managers. Those initiatives have allowed banks to originate and structure transactions while allocating longer-dated term risk to third-party capital, thereby preserving cli- ent coverage and fee income without undertaking full on-balance exposure. Co-origination and JV models have therefore become a familiar element of market architecture. Where on- balance holdings would have been capital inefficient, banks and funds established blended vehicles that share economics and underwriting duties. Sponsors have gained access to a broader capital menu and have been able to combine bank liquidity with private- credit term capital to tailor pricing, tenor and covenant packages to transaction needs. One practical distinction has kept banks central: they still provide committed working-capital products, notably revolving credit facilities (RCFs). Institutional private-credit investors rarely offer comparable RCFs as a standard product. Sponsors therefore retain bank relationships for day-to-day liquidity, while tapping private credit for long-dated term funding. In prac- tice, hybrid financings – blending a super senior RCF with private-credit tranches – became the prevailing sponsor model in 2025. Long-Term Commitments: Continuation Funds With their growing adoption in 2024, continuation funds (GP-led secondary vehicles) have now become a widely adopted solution in France for extending investment timelines and providing vital liquidity when traditional exits are scarce. These transactions spin out one or more mature portfolio companies into a new vehicle, where incoming investors provide capital and existing LPs can either cash out or roll over their interests. This mechanism is crucial for addressing the pressing need to return capital to investors and helps sponsors avoid forced sales, allowing them to manage assets through challenging market windows. Such vehicles offer an orderly alternative exit, provid- ing LPs liquidity without a traditional trade sale. Their rising use reflects the private equity sector’s adapt- ability, enabling managers to maintain investment performance despite difficult liquidation conditions.
French practice prioritises valuation transparency and robust conflict mitigation in continuation deals. Man- agers use independent advisers or valuation commit- tees for transfer price benchmarking, and LP advisory committees oversee potential conflicts between exist- ing and rolling investors. Deal documentation details all fees, carried interest, voting rights, and special governance provisions for minority LP protection. While this ensures balanced terms, inherent conflicts of interest between GP and LPs, alongside subjective illiquid asset valuation, remain key challenges. Con- cerns can arise, for instance, if dividend distributions provide a misleading image of the real performance of the funds or if remounting capital artificially inflates return rates. A growing cohort of dedicated secondary investors has broadened the capital available for these GP- led deals in France. With sound pricing rationale and governance, continuation funds are now an accepted portfolio-management tool. Crucially, a continuation fund creates a newly capitalised vehicle with fresh val- uation and clear governance, making it an ideal plat- form for further, hybrid financing. This synergy means banks and private credit funds actively back these structures, extending NAV lines and subscription financings to the continuation vehicles themselves. Serving sponsors and LPs, these funds enable con- tinued value creation and provide liquidity/flexibility. Nevertheless, these structures ultimately defer, rather than eliminate, the exit risk, leaving underlying assets exposed to broader macroeconomic and geopoliti- cal uncertainties that impact performance, prolonging investor uncertainty. As the French market deepens, this integration of capital sources and the role of con- tinuation vehicles are expected to remain an important means of managing liquidity and exits in 2025 and beyond. Liquidity Without Exits: NAV Financing Building directly on the momentum generated by GP- led secondary structures such as continuation funds, French sponsors increasingly turned to NAV financing as a key liquidity tool amid constrained exit markets. A NAV facility – secured by a fund’s aggregate net asset value rather than new commitments – allows a manager to tap portfolio value for interim needs (such as follow-on investments, secondary purchases, or
161 CHAMBERS.COM
Powered by FlippingBook