“The device will clearly be less necessary than expected”

The participatory loan system (PPR) is like car insurance: its effectiveness is not judged by the number of accidents but by the quality of its coverage. Here is the position of the Ministry of Economy today on the PPR launched with great fanfare at the beginning of March. A tool that has not (yet) found its audience. “The device will clearly be less necessary than expected en masse, Bercy confirmed, contacted on 25 November. But there will be companies that will need it. “This is not about disunity: the government has simplified the eligibility criteria and will extend the distribution of equity loans and recovery bonds. “Let’s not miss a great idea,” CPME said last June.

We recall that equity loans are “a fairly innovative quasi-solvency tool to strengthen the balance sheet without diluting shareholders in governance” intended for SMEs / ETIs with a minimum turnover of 2 million euros, healthy before the crisis, which need leverage to invest. Their characteristics? Duration 8 years, repayment after 4 years (definitely for bonds), subordinated debt, a rate of 4 to 5.5% for SMEs (slightly higher for ETIs), an amount up to 12.5% ​​of 2019 turnover (PMI) or 8.4% (ETI) and a state guarantee of 30% on all invested funds (€ 14 billion).

Equity loans came too soon

The failure of Relance Equity Loans (PPR) is mainly due to dynamic and unexpected growth. “We anticipated the data a year ago. At the time, no one expected growth of 6.25%. It is good news that there is less need to strengthen budgets than expected, ”says Bercy. If there is no “fixed figure” on the status of the distribution (a report will be drawn up in 6 months), the ministry already speculates that “it will distribute far fewer loans than expected”.

“We couldn’t put entrepreneurs in a syringe, telling them it’s now or never

It is also explained by unfortunate timing. On the one hand, state-guaranteed loans (PGE), extended until June 2022, still occupy the PPR field. “We feel today that there is an evolution in the demand for PGE: they are less and less in demand as an emergency liquidity tool and more and more in demand as a means to build the maintenance of one’s BFR, also to invest in the long term. fully effective as soon as there are no more PGEs “.

On the other hand, the period allotted to the device is too short. “Reorganizing one’s liabilities is not something that is done in a week but in several months, we specify. We couldn’t put entrepreneurs in a syringe by telling them it’s now or never. “Designed until the end of June 2022, the system will be extended until December 31, 2023. A more consistent timetable with the end of the PGE and greater long-term visibility for entrepreneurs to reorganize their budgets.

Too high a rate?

The high rate of PPR (from 4 to 5.5% for SMEs), higher than that of PGE (about 2%), is regularly highlighted. “This is not a new PGE, remembers Bercy. Yes, the interest rate is higher than the PGE but it is normal, it is a long term instrument with a very long grace period. “

So what’s the benefit of OSRs? «The idea is, for example, to borrow 100 euros which you will pay back in 8 years. This loan strengthens your balance sheet and allows you to borrow € 200 of bank debt at a reasonable rate. The weighted average of the tariffs is arc-competitive. Thanks to the PPR, it is possible to access loans that were previously inaccessible ”, defends the ministry.

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“Some difficulties in granting equity loans”

Another obstacle to success: the complexity of the device. Equity loans are highly subordinated bank loans that resemble mezzanine debt, Bercy specifies. This is clearly a new tool for SMEs and non-specialized banking networks. We need a period of learning and acculturation that is legitimate. “

“Bonds may eventually appeal to a fairly large number of players.”

On the supply side, the government is therefore carrying out educational work with the French banking federation (FBF) and local banks to inform banking networks. A list of OSR use cases has been posted online. On the demand side, the ministry made several simplifications “in the contractual documentation between distribution banks and institutional investors”:

  • Removal of the FIBEN rating to access the PPR (the internal creditworthiness of the company at the lending bank is sufficient);
  • Simplification of consolidation rules so that OSRs benefit groups;
  • Simplification of the rules to allow new SMEs to access loans, especially those held by funds;
  • For loans over € 10 million, the grace period is extended to 6 years instead of 4 years.

Despite these simplifications, the product remains sophisticated. This is less the case with the Relance bonds officially launched on November 16, 2021, on which Bercy is betting today: “At the beginning we really thought of using the bonds as an auxiliary instrument. Finally, it turns out that they could be of interest to a fairly large number of actors ”. How come ? Because the management funds that will distribute them are used to private debt and repayment definitely 8-year bonds bring them closer to equity.

Not enough to bury the PPR. “There are companies whose balance sheets have been weakened by the crisis. It is not about stopping the device, it is emphasized. The government was very clear: do not disappoint any company with a sustainable economic model before the crisis. We would like family SMEs / ETIs to be able to benefit from this balance sheet strengthening tool without diluting shareholders in governance. “

Debt or non-debt?

The recognition of participatory loans as quasi-equity is debated, undermining the attractiveness of the system. Debt or non-debt? “The phrase quasi-equity it is a financial expression, not a legal one, confirms the Ministry of Economy. Legally, it’s a debt, it’s not a property title. In general ledger, we are obviously debt instruments [et non des fonds propres, ndlr]. “

A subtlety without consequences for the company. “The PPR alone cannot lead to a negative impact on the internal rating of the bank and on the rating of the Banque de France; on the contrary, in the general case, for the company that makes use of it, it leads to an improvement of its financial structure ”, assures the government in its FAQ. “What matters is not so much the accounting analysis as the financial analysis, explains Bercy. On the part of lenders, funds or banks, we are in a more favorable weighting logic than traditional debts. They are well aware that you have no short-term repayment obligations. “

Read also Equity loans: “the distribution will be effective from next week”

Matthew Barry

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