FRANCE Law and Practice Contributed by: Raphaële Courtier, Sébastien de Monès, Victor Camatta and Jessica Chartier, Bredin Prat
4. Intercreditor Agreements 4.1 Typical Elements
can be prepaid without penalty, when high-yield bonds generally provide for a three-year non-call period), as well as the private aspect thereof, which allows limited financial communication. 3.5 Private Placements/Loan Notes Private placements raised from institutional investors (as opposed to mezzanine or uni- tranche financing raised from mezzanine funds) have become a common feature in the French financing market. The typical profile of a private placement issuer is an ETI ( entreprise de taille intermédiaire ); ie, a medium-sized corporate. In the context of acquisition finance, experience shows that private placements are used either to refinance, in whole or in part, an acquisition loan or to raise funds in advance with a view to financing an expansion strategy. However, private placements are rarely used as primary financing for a dedicated acquisition. With a maturity of seven to nine years, private placements are a means by which corporates can extend the average duration of their indebt- edness. 3.6 Asset-Based Financing Asset-based financing is not commonly used in France for direct acquisition financing. However, once an acquisition is completed, asset-based financing might be envisaged at the level of the target group, with a view to implementing a debt push-down and reducing the acquisition debt at the level of the holding company. The most commonly seen types of asset-based financing in this context are receivables-based financing, such as factoring transactions (with or without recourse), or securitisation financing.
Intercreditor agreements are commonly used for leveraged French acquisition financing transac- tions and contractually organised payments and claims’ priorities between the senior creditors (including the hedging counterparties), second- lien and/or mezzanine lenders (if any), equity- holders and intra-group lenders. The intercreditor agreement organises allocation of payment of the principal, interest and fees of the senior creditors in priority over any lower- ranking creditor and establishes prohibitions and exceptions on other payments or distributions. This entails that if any payment is made to a subordinated lender in breach of any agreed contractual provisions, the subordinated lender shall reverse the payment so received in favour of the senior lenders. The intercreditor agreement will rank the secu- rity interests granted in the transaction and the allocation of payments between the various ranking beneficiaries of the security interests, in the event of the realisation of these security interests. It has been debated whether the contractual subordination of certain debts could be viewed as undermining the French principle of equality among the creditors. Since this equality princi- ple can be considered a matter of public policy ( ordre public ), some have questioned the full enforceability of these subordination agreements against third parties (particularly in the context of bankruptcy), or even their effectiveness between the parties to the subordination agreement. However, the French Supreme Court ( Cour de Cassation ) has, in the past, recognised the
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