Regional Guide to Europe: France

Direct lenders are competing strongly with local banks as private debt had some of its biggest months ever in France.

The French market took 20 percent of all European direct lending deals in H1 2021 as the private debt industry enjoyed a sharp rebound in activity and some of its busiest months on record, according to Deloitte figures.

GCA Altium records that 46 percent of French senior and unitranche deals in H1 were done by direct lending funds, who are demonstrating an increasing ability to compete with the local banks that have historically been dominant.

At Arcmont, CEO Anthony Fobel says: “The French banks have perhaps been quite defensive of their market share, but the reality is that the sort of loan sizes we are targeting, anywhere from €100 million to €1 billion, are typically outside the size that the banks can underwrite and hold on their balance sheets. Generally, for larger mid-market deals, the banks have become less of a competitive threat, and similarly the liquid markets find those deals too small, and so, we operate in something of a sweet spot.”

Number of France-based funds in market

Total amount targeted by funds in market

ESG has become a growing feature of the French direct lending market, with an increasing number of funds adding extra impact covenants to their deals or offering a ratchet to decrease the interest rate margin if certain ESG targets are met. Tikehau has pioneered the approach, with Amundi launching a private debt impact fund with commitments of €650 million in September to finance mid-caps in France and Europe and focus on impact financing with incentives for companies to reach ESG objectives.

Thierry Vallière, head of private debt at Amundi, says: “We are seeing strong demand both from investors and companies for sustainable finance – last year it was probably 20 percent of transactions and this year it is probably a third already, so next year it could be half our deals. It’s really something that’s developing very fast in France.”

At Tikehau, head of private debt, Cécile Mayer-Lévi, adds: “The first half was extremely busy with a combination of a catch-up effect coming out of the pandemic and also long-lasting trends driving private debt demand and creating a virtuous circle.”