French companies face restructuring amid economic pressures

A number of French companies are facing restructurings due to economic challenges, a situation that has garnered interest from hedge funds specialising in distressed debt.

According to reports, restructuring advisors and investors are observing over a dozen mid- and large-cap French businesses, many of which are owned by private equity groups.

Sources indicate that Colisee, a care home provider, is currently undergoing debt restructuring, and Cerba, a lab operator, may also face similar action. Both companies are part of EQT's portfolio. Other private equity-owned companies with significant debt and potential restructuring needs include Emeria, a real estate services business owned by Partners Group, and Ingenico, a payments operator owned by Apollo.

"Between 15 and 20 [French] names are being monitored" due to "leverage or liquidity issues," according to one restructuring banker cited in a report, with the majority being private equity-owned.

Businesses across Europe are dealing with high debt levels and a lack of cash to manage rising interest rates during refinancing. In France, the situation is particularly pronounced due to a relatively high number of businesses with large debt in sectors sensitive to consumer spending fluctuations, such as retail and telecoms.

The Bank of France has also noted a "catch-up effect" in the country, where businesses that received state support during the pandemic are now experiencing difficulties. "In Paris, international debt funds are frequently visiting," said Olivier Sibenaler, a restructuring expert at AlixPartners, indicating an increase in activity since the start of the year.

Emeria, Ingenico, Colisee, EQT, and Partners Group declined to comment. Cerba did not respond to a request for comment.

The debt issues reflect broader economic challenges in France. Business bankruptcies in France are at their highest level since 1991, according to the Bank of France. Additionally, the number of leveraged buyouts (LBOs)—acquisitions by private equity groups using substantial debt—is notably higher in France than elsewhere in Europe. Analysis by HEC professor Oliver Gottschalg shows 4,675 LBOs in France since 2015, compared to 2,786 in Germany and 1,749 in Italy.

Businesses have faced multiple "shocks," said Céline Domenget-Morin, a restructuring lawyer in Paris at Weil, Gotshal & Manges, referring to events like the pandemic and the war in Ukraine. She noted that companies may struggle to recover after multiple such events.

Regulatory changes enacted in 2021 have also influenced restructuring processes. France adopted European insolvency legislation that adjusted the position of shareholders in relation to previous laws. This has led to more direct negotiations among creditors, allowing some lenders to compel others into restructuring agreements. Sibenaler stated that these changes have provided a "tool" that makes France more appealing to some international credit investors.

Hedge funds focused on distressed debt, often based in the U.S. and UK, can acquire positions in distressed companies by converting debt to equity through the restructuring process. "France is being closely observed," said an investor at a European credit hedge fund, indicating significant potential activity.

France has seen several prominent restructurings recently, including retailer Casino, care home provider Orpea, and telecoms company Altice. Creditors to Patrick Drahi’s Altice USA are anticipating further restructuring, and Casino’s debt has reached highly distressed levels just over a year after its €5 billion restructuring.

As reported by the Financial Times, Bloomberg data shows that some traditional high-yield credit investors have sold off Colisee’s debt. "Distressed hedge funds will likely be involved in those transactions," commented one high-yield bond investor. The debt of medical laboratory group Cerba is also trading at distressed levels due to declining performance. Cerba’s secured bonds are trading at 76 cents on the euro, while its unsecured debt is trading at approximately 22 cents on the euro, as lenders anticipating losses have divested.

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