FRANCE Trends and Developments Contributed by: Fernand Arsanios, Delphine Guillotte, Guillaume Chaboureau and Houda Idaroussi, King & Spalding
ing senior creditors’ primacy. It became standard to cap PIK accrual (eg, limiting the percentage of inter- est that could capitalise) and to require an eventual “make-good” if cashflows permitted. Where a PIK toggle (allowing issuer to switch from cash to PIK interest) was granted, it was tightly tied to conditions – eg, it could not be used during any event of default, had maximum usage periods, and carried an extra premium when toggled. In short, the documentation focused on clarity: senior lenders insisted on defined subordination language and waterfall mechanics so that they always knew where they stood. The return of these instruments reflects market needs in 2025. Companies facing heavy capex or cyclical shortfalls could preserve liquidity by pushing interest into the future, while sponsors avoided immediate equity dilution. Conversely, lenders accepted these structures only with contractual safeguards. The upshot was a more flexible capital stack: mezzanine/ PIK dealers sat comfortably below senior loans, yield- ing higher returns, yet creditors had enforceable caps and recovery commitments. Industry observers note that well-crafted subordinated financings have func- tioned as bridge capital – giving sponsors breathing room to execute turnarounds or expansions, without threatening senior security even if performance disap- points. Time on Their Side: Amend and Extend For healthy companies facing a looming debt matu- rity wall with no clear path to refinancing in a difficult market, amend-and-extend (A&E) solutions have pro- vided a crucial financial lifeline. An A&E is a consen- sual agreement between a borrower and its existing lenders to push back a loan’s maturity date, typically by two to three years. It is a pragmatic response to adverse market timing, allowing a fundamentally sound business to avoid a default triggered solely by the inability to access refinancing markets. Over the past 12 months, A&E solutions have been widely used as tactical measures, enabling sponsors and corporates to lengthen maturities and recalibrate covenants without immediate full refinancing in uncer- tain market windows. Under A&E agreements lenders have extended maturities and adjusted covenant tim- ing in exchange for extension fees, revised covenant
baskets and enhanced reporting or re-offer mechan- ics. Lenders have consented to A&E where sponsors have presented credible refinancing roadmaps or demonstrable operational improvements. Documen- tation commonly embedded forward-looking triggers and covenant recalibrations intended to channel the borrower back to market refinancing when condi- tions permitted. The drafting emphasis has been on ensuring temporary concessions are accompanied by enforceable protections. In consequence, A&E has functioned as a pragmatic contractual remedy to preserve enterprise value. 2025 treated A&E as a disciplined interim mechanism rath- er than a durable substitute for market refinancing, and parties have reflected that stance by tightening amendment language and clarifying re-market obliga- tions. Covenants with a Conscience: ESG as a Core Deal Term Environmental, Social and Governance (ESG) consid- erations have moved from “nice-to-have” to an essen- tial part of French financing. Sustainability-linked loans (SLLs) are now a standard feature of the mar- ket. These loans tie the borrower’s interest margin to performance against pre-agreed, ambitious ESG key performance indicators (KPIs). If the borrower meets or exceeds those targets, it earns a small interest-rate reduction (a margin ratchet down). If it fails, it faces a penalty in the form of a margin increase. The market has matured beyond vague commitments. In 2025, documentation focuses on precision, mate- riality, and accountability. KPIs are tailored to the bor- rower’s industry — eg, CO₂ emissions for manufactur- ers, water use for agriculture, and safety metrics for construction. Measurement methods are defined from the start, and performance is usually verified by an independent third party to avoid “greenwashing”. Giv- en the growing maturity of companies, rendez-vous clauses — contractual provisions that require parties to reconvene at a set date to reassess ESG targets or update KPIs — are no longer automatically included as lenders have developed robust ESG frameworks before seeking financing.
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