FRANCE Trends and Developments Contributed by: Magali Béraud, Anthony Minziere and Jonathan Nabarro, Nabarro Béraud Avocats
an insolvency. To date, the rules relating to how that subordination will be implemented and doc- umented have not yet been made available. It will be necessary to organise the cohabitation of these instruments with any acquisition finance instruments. ESG As is the case in the world at large, ESG-related issues have increasingly come to the forefront in acquisition finance in France. For many years, direct lending funds, driven by the requirements of their limited partners, have demanded fairly substantial ESG reporting. This generally takes the form of a questionnaire which the issuer is required to complete and deliver on an annual basis. The questionnaire covers such matters as envi- ronmental issues, labour relations, corporate governance, ESG initiatives or anti-corruption. This reporting requirement is now becoming relatively commonplace in bank loan documen- tation as well.
A further trend, which is the corollary of the reporting requirement, is the implementation of margin ratchets based on ESG criteria. These mechanisms have been prevalent in unirate bond financings for some time and they are now also to be found in bank loans as a result of the more favourable regulatory treatment of “green” loans. Typically, there will be a small downwards mar- gin adjustment of up to 15 basis points in incre- ments of five basis points if a given number of ESG criteria are met. Usually, there will be three or four ESG criteria relevant to the business of the issuer and increasingly stringent tests over time in order to incentivise the issuer to meet those criteria. For example, if four criteria are tested, a first margin decrease of five basis points could apply if two of the criteria are met, and five basis points each if one or more of the remaining criteria are met. There will often also be a small margin increase (generally five basis points) if none of the criteria or a certain number of them are not met on a given test date.
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