Banks face the wall of fragile corporate debt

Banks and advisers anticipate future corporate restructurings. The situation has changed since the financial crisis: as with Bourbon, banks are ready to convert their debt into capital.

SECOND PRIZE of the first session of the Photo Contest 2016-2017.  AHTS Bourbon Gulf Liberty 211 in anchor lifting operation on the Hasbah and Arabiyah oil fields off Saudi Arabia in October 2016.

It is a signal that does not deceive. Viscerally opposed to taking the orders of a company in difficulty, French banks are ready to convert their debt into capital at the oil services company Bourbon. A clear message sent to shareholders and funds which are preparing for a new wave of restructuring in the event of a downturn: they will no longer pass their debts through profit and loss.

While the debt of French companies hit a record last year, banks are much more exposed than after the financial crisis. Their listed clients are in the spotlight (Vallourec, Bourbon, Sequana) and no longer just the companies bought by investment funds and burdened with debt after 2008.

And they drew the lessons of those years when they worked out with the shareholders by being satisfied with pushing back the repayment deadlines. “ The banks saw clearly that such arrangements did not hold up over time and that the companies ended up on the mat ”, indicates an expert in the sector.

Difficulty assigning receivables

Banks have all the less difficulty in asserting themselves as they no longer really have a choice. “The documentations of bank loans in recent years often prevent them from assigning their debts, and their regulatory constraints are sometimes stronger on risky loans than during the crisis”, adds another specialist. Finally, since the turnaround of Saur with BNP Paribas and Natixis, they know that they too can benefit from a well-managed turnaround.

And the cases could well multiply. Pioneers, distributors have felt the first effects of the slowdown in consumption and the upheaval of models. After IKKS in October, Camaïeu came under the control of its creditors in December, which are in particular the American funds Farallon, Carval and the European CVC. Under pressure from its creditors, Casino restructured and increased sales.

In industry, the glassmaker Arc International is once again looking for capital; the Sequana paper maker is in serious financial difficulty. Second-tier automotive suppliers are feeling the impact of the diesel crisis. In services, convenience stores, as well as hotels and restaurants, have suffered from the “yellow vests” demonstrations.

No French succession fund

What to give an appetite to Anglo-Saxon alternative funds which buy back the debt at a discount, like Centerbridge, Farallon or Carval, and some are entering the French market. If, for a while, the authorities and the courts saw them with a bad eye, “They are now receiving a rather favorable reception, because the alternatives are sometimes almost nil”, say experts. Hedge funds are yesterday’s private equity funds ”.

The ranks of the French turnaround funds, despite the political will of Emmanuel Macron, are, it is true, still not provided. Attempts at French funds, such as the 500 million one announced by Bridgepoint with Bpifrance, have gone unheeded.

The appetite for foreign alternative funds drains a whole series of Anglo-Saxon advice. The Lazard or Rothschild investment banks and the Weil Gotshal or White & Case law firms are the most active. But faced with the market outlook, the American bank PJT would like to enter, as well as the British law firms Kirkeland and Sidley.