The public authorities are trumpeting the fact that any company that has taken out a State Guaranteed Loan (SGP) can now apply to have the repayment spread over an extended period over two to four years[1]. We believe it to be useful to temper the enthusiasm of the official communication.
One should recall that during the health crisis linked to the Covid-19 epidemic, many French companies were able to take out an SGP. The repayment of these loans could be spread over a maximum period of six years[2]. To take into account the difficulties of some companies struggling to repay their SGPs on time, the option to spread the loan over a maximum of 10 years has been allowed by the French government.
Although, this may be self-evident, it should be casually remembered that the creditor bank is free to either grant such a request to spread the repayment of the SGP over a longer period or, on the contrary, to reject it and demand that the initially agreed repayment schedule be maintained.
Of course, if the banker agrees, extending the repayment period allows the company to immediately increase its cash balance. This is a good thing without a doubt.
However, the effect of the message of financial fragility that is sent to the bank should not be overlooked. The creditor bank will necessarily consider that the debtor company is not able to repay the SGP according to the original schedule.
If the bank agrees to postpone the original repayment schedule, the restructured loan will fall into the category of "non-performing" loans[3]. The bank will then be obliged to declare this restructuring to the Banque de France[4]. The Banque de France will in turn downgrade the rating of the debtor. It will then be more difficult for the company to obtain new credit. A "probationary period" of one year, the company will not be able to ask for its rating to be revised upwards[5].
Once the restructuring process is underway, there is unfortunately no escape from this logical sequence.
Therefore, it may be wise - as far as possible - to avoid restructuring the SGP even if it means using other available financial levers so as not to affect the company's borrowing capacity in the future. The rescheduling of the SGP should, in our opinion, be considered as a last resort after having explored alternative financing solutions such as inter-company financing for example.
[1] Statement by Mr Bruno Le Maire, Minister of the Economy, Finance and Recovery of 4 January 2022.
[2] Communication from the European Commission on the temporary framework for State aid measures to support the economy in the current context of the outbreak of COVID-19 of 20 March 2020.
[3] If the restructuring leads to a variation of more than 1% in the present value of the repayment flows before and after restructuring (Banque de France, Confederal Steering Committee of Wednesday 16 February 2022).
[4] Guidelines for banks on non-performing loans - European Central Bank - March 2017.
[5] FAQ - State Guaranteed Loan - How to benefit (Version dated 7 April 2022)