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Hedge funds are circling greater than a dozen distressed firms in France, as a string of financial shocks pushes rising numbers of companies in direction of painful restructurings.
Restructuring advisers and distressed debt buyers mentioned they have been monitoring struggling mid and large-cap firms, usually owned by non-public fairness teams.
Two of EQT’s portfolio firms, care residence supplier Colisée and lab operator Cerba, are both restructuring their debt or prone to doing so. Companions Group’s actual property companies enterprise Emeria and Apollo’s funds operator Ingenico are amongst different indebted firms owned by non-public fairness which can be prone to needing to restructure, individuals accustomed to the instances mentioned.
“Between 15 and 20 names are being monitored. All are developing as actual potential conditions resulting from leverage or liquidity points,” one restructuring banker mentioned, including that the overwhelming majority have been non-public equity-owned.
“In Paris, not per week goes by and not using a UK or US debt fund coming to see us,” mentioned Olivier Sibenaler, a restructuring skilled at consultancy AlixPartners. “It has actually acquired going for the reason that begin of the yr.”
Emeria, Ingenico, Colisée, EQT and Companions Group declined to remark. Cerba didn’t reply to a request for remark.
The debt troubles are a mirrored image of challenges throughout the French financial system. In line with the Financial institution of France, enterprise bankruptcies in France are at their highest stage since information started in 1991.
Companies throughout Europe are battling excessive ranges of debt and an absence of money to pay rising rates of interest after they refinance.
However the scenario is especially acute in France, the place there’s a comparatively excessive variety of companies with notably giant debt piles in weak sectors similar to retail and telecoms, in addition to a catch-up impact from the Covid-19 pandemic when many companies have been protected with beneficiant French state-backed loans.
The variety of leveraged buyouts — when non-public fairness teams purchase firms utilizing giant quantities of debt — can be a lot greater in France than elsewhere in Europe. There have been 4,675 LBOs in France since 2015, in contrast with 2,786 in Germany and 1,749 in Italy, in accordance with evaluation by HEC professor Oliver Gottschalg.
Companies have confronted a “multiplication of shocks”, mentioned Céline Domenget-Morin, a restructuring lawyer in Paris at Weil, Gotshal & Manges. “You get via a primary [shock] and a second after which, when a 3rd comes, you may not take it,” they mentioned.
Regulatory adjustments carried out in 2021 have additionally affected how restructurings play out. France adopted European insolvency laws that considerably weakened the hand of shareholders in contrast with earlier laws.
The method results in extra antagonistic settlements between collectors, the place some lenders can now pressure others into restructuring offers via a course of referred to as a “cross-class cramdown”.
The adjustments have offered a “device” that makes France a extra enticing location for some worldwide credit score buyers, mentioned Sibenaler.
Hedge funds investing in distressed debt, usually based mostly within the US and UK, can purchase stakes in distressed firms by changing their debt to fairness via the restructuring course of.
“We’re retaining an in depth eye on France,” mentioned one investor at a European credit score hedge fund. “There’s rather a lot to do there,”
France has already had a string of high-profile restructuring conditions lately, together with retailer On line casino, care residence supplier Orpea and telecoms firm Altice. Collectors to Patrick Drahi’s Altice USA are readying themselves for an additional spherical of restructuring, whereas On line casino’s debt has sunk to deeply distressed ranges simply over a yr after its €5bn restructuring.
After these giant restructurings for listed companies, many firms owned by non-public fairness teams are actually more and more weak.
Bloomberg information present that some conventional high-yield credit score buyers have dumped Colisée’s debt. “Will probably be distressed hedge funds on the opposite aspect of these transactions,” one high-yield bond investor mentioned.
The debt of medical laboratory group Cerba can be buying and selling at distressed ranges following worsening efficiency. Cerba’s secured bonds are buying and selling at 76 cents on the euro, whereas its unsecured debt is buying and selling at about 22 cents on the euro, as lenders anticipating heavy losses have offered out.
Further reporting by Alexandra Heal
