FRANCE Law and Practice Contributed by: Raphaële Courtier, Sébastien de Monès, Victor Camatta and Jessica Chartier, Bredin Prat
because it is less risky for the investor due to the fact that it is not subordinated to a senior debt, unitranche financing is easier to implement and manage for the sponsors. Mezzanine and unitranche financing globally present the same characteristics: • a five- to eight-year bullet maturity; • a mix of cash and payment-in-kind (PIK) inter- est; and • potentially, an equity kicker. As far as PIK interest is concerned, the French rule known as anatocisme imposes a capitalisa- tion of interest at minimum on a yearly basis. 3.3 Bridge Loans Bridge loans in the context of acquisition financ- ing can be used to respond to a variety of situa- tions, generally presenting the same character- istic in common: the timing of the final source of financing not being compatible with the timing of the acquisition. Reasons for final sources of financing needing to be bridged can be multiple: divestment in one or several asset(s), an equity capital market (ECM) transaction (when the borrower is a listed com- pany and intends to raise equity on the market to finance, in whole or in part, the acquisition), the issuance on the debt capital markets (DCM) of one or several bonds, in particular when the bor- rower intends to finance the acquisition through a high-yield bond issue, etc. Bridge loans may also be used in contexts where the borrower needs to preserve a very high level of confidentiality on the contemplated acquisi- tion (eg, in the context of a public offer). In that case, the borrower will negotiate a bridge loan with one single bank, on the understanding that
the bridge loan will be refinanced quickly after the transaction has become public. Bridge loans are generally provided by banks (as opposed to funds) and take the form of a senior loan, which the banks will have the right to syn- dicate after a certain period if the bridge loan has not been refinanced by that time. Typically, the bank(s) providing the bridge loan will negotiate a role in the transaction designed to refinance the bridge (as arrangers or otherwise) as a reward for providing the bridge loan. 3.4 Bonds/High-Yield Bonds Bonds may be used in two different situations. When the lender is not licensed to grant loans to a French borrower pursuant to the French banking monopoly: indeed, bonds are excluded from the French banking monopoly. This situa- tion concerns mainly mezzanine and unitranche financing, where the bonds are subscribed through a private placement and are not admit- ted to trade on a public market. When the borrower intends to finance the acqui- sition by raising funds on the debt capital mar- kets, including, as the case may be, through the issuance of high-yield bonds: however, recent years have shown that if non-investment grade corporates continue to favour high-yield bonds, LBO funds tend to opt more and more for loans as a source of financing, in particular TLB, a product which banks have developed as a means to compete with the high-yield bonds market. With a bullet maturity, light covenants and pricing conditions comparable to (if not bet- ter than) high-yield bonds, despite their float- ing rates, TLBs are perceived as a very attrac- tive alternative to high-yield bonds’ issuances. In particular, sponsors appreciate the flexibility offered by TLBs in terms of prepayment (a TLB
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