FACTBOX-France’s new quasi-equity system to support companies
PARIS, March 4 (Reuters) – The French government on Thursday launched a new quasi-equity debt guarantee scheme to help small and medium-sized businesses recover from the coronavirus crisis.
Here are the main details:
How does the warranty work?
The state guarantee will cover 30% of potential losses out of a total of 20 billion euros of debt that is expected to be bought by institutional investors such as insurers.
How will the scheme work?
Banks will provide loans to small and medium-sized enterprises, which will then be sold to institutional investors through private investment vehicles officially guaranteed by the State. Banks will maintain 10% loan exposure to ensure sound lending decisions.
Companies will also be able to issue bonds subordinated to investment vehicles.
What are the terms of new loans and bonds?
The loans and bonds will have maturities of eight years with a four-year grace period on repayment of the principle. They should also be used to support investment and not to finance existing debt.
Small and medium-sized businesses can borrow up to the equivalent of 12.5% of their 2019 income and 8.4% for mid-market businesses. If they have already used state guaranteed loans during the crisis, these limits are set at 10% and 5% respectively.
Banks and asset managers will set the interest rate, but SMEs are expected to pay between 4-5.5% per annum and midsize companies a little more, according to the finance ministry.
The first loans are due in early April and the program will be open until mid 2022. (Reporting by Leigh Thomas; Editing by Toby Chopra)