FRANCE Trends and Developments Contributed by: Magali Béraud, Anthony Minziere and Jonathan Nabarro, Nabarro Béraud Avocats
The co-existence of the two instruments is particularly complex where the PIK instrument benefits from security, in particular, a pledge of the shares of the issuer of the senior debt which provides negotiation leverage against the equity provider whilst not interfering with the priority rights of the senior lenders. In some instances, the senior debt and the PIK instrument will share security, particularly the pledge of the shares of the issuer of the senior debt. If this is the case, it will be necessary to implement an intercreditor agreement to regu- late the respective rights of the secured parties and, in particular, to ensure the subordination of the PIK instrument by restricting its rights to declare an event of default or to enforce the common security. Bond Issue Programmes For some time now, it has been common for equity investors in French transactions to imple- ment a buy-and-build strategy in order to create value. Due to the banking monopoly issue men- tioned in the introduction, unirate financings in France are usually structured as bond issues. However, the French law relating to bond issues is not necessarily well adapted to the acquisi- tion or capex lines necessary to implement this strategy as they are less flexible than bank loans. In order to meet this financing requirement, recourse has been had to bond issue pro- grammes, that is a series of separate issues as and when a financing requirement arises. How- ever, certain technicalities raise some complex issues. Bondholders of a given issue are grouped together in what is termed a masse . Where bonds in a programme are fungible, the holders of all fungible bonds are grouped together in a single masse and thus a single voting constitu- ency ( assimilation ). The advantage of this single
constituency is to facilitate decision-making, a single consultation of the bondholders being possible in lieu of consultation of the holders of each discrete issue. Under the general law relating to bond issues, this is only possible where the bonds of the dif- ferent issues give identical rights for a given face value (both in terms of voting rights and in eco- nomic terms – interest rate, capitalised interest, call protection for the bondholders, etc). Subject to the matters discussed below, any decision to be taken by the bondholders of a given masse is by a two-thirds majority. If the holders of each issue were to be consulted, this two-thirds majority would be required for each issue. While this is not problematic where the holders of each issue are identical, that is not the case where there are different holders of different issues with each issue effectively holding a veto right. Assimilation is difficult to achieve where the bonds are issued on different dates as is the case where a buy-and-build strategy is imple- mented, particularly where the bonds bear capitalised interest or where each issue has a non-call/make-whole period which runs from its respective issue date. However, certain provi- sions of the French Commercial Code and the French Monetary and Financial Code enable practitioners to alleviate these issues to a con- siderable degree. If the bonds are fully subscribed by subscrib- ers resident outside France or if the rules relat- ing to what are termed “wholesale” issues (ie, bonds which are subscribed by qualified inves- tors only, a condition which is deemed met where the face value of each bond is at least equal to EUR100,000 or a minimum holding of EUR100,000 is required by the bond documenta- tion) are complied with, it is possible to dispense
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