COVID 19 and structured finance transactions Update on support measures adopted in France

The COVID-19 crisis has forced national governments to take emergency measures to support their national economies, notably by taking steps to provide relief to companies facing, or about to face, a liquidity shortage as a result of the "stay-at-home" restrictions, either in facilitating financial support to be provided to them or in allowing their current financial or other obligations to be suspended during the crisis.

To date (i.e., as of 31 March 2020), contrary to certain other European jurisdictions, the measures taken by the French government to freeze the application of existing financing arrangements remain general in nature and do not  specifically extend to structured finance transactions (securitizations, factoring arrangements, supply chain finance) for instance. As a matter of fact, they focus on suspending general payment defaults on loan transactions but do not cover specific structured finance issues such as performance default or delinquency tests, rating triggers or servicing issues (or the consequences of such payment holidays on the relevant transactions' performance triggers).

That being said, as far as France is concerned, the following general postponement measures have been enacted, which measures should also apply to structure finance transactions. Other financial support measures may also be of interest for structured finance transactions.

1. General postponement measures (Ordinance No. 2020-306 of 25 March 2020, the "Ordinance")

French law enacted measures pursuant to the Ordinance so as to postpone certain mandatory delays or time-periods which  were to mature or expire from 12 March 2020, up to one month after the end of the state of national sanitary urgency declared by the French state on 12 March 2020 (the "Suspension Period"). Note the Suspension Period does not apply to financing arrangements benefitting from the French financial collateral regime derived from the Collateral Directive (Directive 2002/47/EC, as amended).

The following measures are relevant in the context of structure financing arrangements:

• Article 2 of the Ordinance: any action, recourse, formality, registration, declaration, notification, publication, etc, which is required to be carried out or implemented by law during the Suspension Period will be postponed to up to the usual delay required for its carrying out/implementation after the end of the Suspension Period (with a maximum of 2 months after the Suspension Period).
  
  Note the Ordinance only applies to actions that are required by law to be carried out or implemented during the Suspension Period, excluding any such action to be made on the basis of contractual provisions. As applied to financing arrangements, this means that the Ordinance does not apply to repayment of debts, which are still supposed to be made at contractual payment dates (in this respect, certain other protections deriving from the French civil code such as force majeure may nonetheless apply if the relevant conditions relating thereto are met).
  
  
• Article 4 of the Ordinance: all (i) court-ordered penalty payments (astreintes) and/or (ii) the effectiveness/enforcement of contractual measures relating to debtors' default (including events of default or termination events, acceleration, late or contractual penalties, cancellation clauses, draw-stops or enforcement of security) shall be suspended during the Suspension Period to the extent the due date of the obligation(s) of such debtor occurs during the Suspension Period and such debtor fails to comply with its obligations during that period.
  
  Such penalty payments or clauses are deemed not to have taken effect or to be effective during the Suspension Period and these clauses will not apply until the expiration of a one-month period following the Suspension Period, if the debtor has still not performed his obligation by then.
  
  
• Article 5 of the Ordinance: any requirement to (i) terminate an agreement within a fixed period of time or (ii) renew an agreement without notice of termination to be send during a fixed period of time which ends or terminates during the Suspension Period shall be suspended during the Suspension Period to up to two months after the Suspension Period.

2.        Other financial support measures adopted by the French government

1. Financial support: the Banque Publique d'Investissement (BPI), the financing arm of the French state, has announced several measures designed to support the French economy.

• Granting of guarantees (to be constituted under a state guarantee mechanism - see below) in the context of eligible additional third party lending. There are certain eligibility conditions for the relevant borrowers to benefit from a BPI guarantee on those loans/financings:
  
  (i) those loans should be in the form of either (i) amortizable mid/long-term financings (from 2 to 7 years) taking the form of loans, financial leases or movable/immovable asset lending or (ii) short-term confirmed working capital facilities, invoice discounting or overdrafts (from 12 to 18 months). To the contrary, certain transactions such as the refinancings of existing mid/long term loans, transactions designed to repay outstanding bonds and cash out financing transactions cannot benefit from the BPI guarantee scheme. In a nutshell, this implies that only factoring or invoice discounting transactions (as opposed to securitization transactions) may benefit from a BPI guarantee under the scheme above;
  (ii) moreover, the maximum amount of such eligible loans cannot represent more than 25% of the turnover (VAT excluded) in France of each relevant borrower for the year 2019;
  (iii) such guarantees are meant to cover up to 90% of the amount of loans (3 to 7 years) or short-term loans or overdrafts (from 12 to 18 months) to be granted by French banks to companies hit by the COVID-19 crisis;
  
  In this context, the French Banking Federation announced that the French banking industry would take certain actions to support their counterparties being hit by the COVID-19 crisis: those measures include (i) an accelerated treatment for credit applications by companies in a stressed cash flow situation (5 day objective), (ii) upon request, deferral of existing loan instalments for up to six months or (iii) the forbearance of penalties/additional costs payable on the basis of the aforementioned debt reschedulings. Where relevant, this should apply to factoring, invoice discounting or supply chain transactions.

• Constitution of a state guarantee (article 6, Amended Finance Law No. 2020-289 of 23 March 2020): the French state constituted a EUR 300 billion state guarantee mechanism (to be implemented through BPI – see above) in respect of all loans granted by French credit institutions/financing companies to French non-financial incorporated in France between 16 March 2020 and 31 December 2020 – see above. 

2.  This guarantee mechanism (i) applies to the principal, interest and ancillary costs, (ii) secures the loan until its contractual maturity date or its early repayment date in case of acceleration (as a result of the occurrence of a credit event) and (iii) is also subject to limitations and conditions in terms of repayment, etc. Although this is not, technically speaking, a payment holiday measure, this guarantee mechanism was specifically designed to help French companies obtain bridge financings to cope with the COVID-19 crisis.

3. Postponement of tax/social charges and usual business charges (rents, utilities, etc.): companies being hit by the COVID-19 crisis may request to defer the payment of their social taxes and direct taxes (excluding indirect taxes and VAT) which are due for the month of March 2020. The postponements are automatic, unconditional, without late penalty and last for 3 months or for a longer period, if necessary (i.e. this may apply for the months of April or May if necessary).

The same measures apply to all utility bills (electricity, gas, water) relating to offices used for professional or commercial purposes, which postponement is supposed to last until the state of national sanitary urgency terminates. As for rents/charges payable in respect of offices used for professional or commercial purposes, no penalty payment (astreinte) or default or penalty clauses or damages shall apply for any failure to pay any such relevant rents/charges which may have become due and payable during the period the state of national sanitary urgency is activated to up to two months after such state of national sanitary urgency ceases.