Why French leveraged buyouts are caving in like camembert
Debt restructurings feel more like a biennial standing appointment rather than a one and done
Corporate crises come in cycles. But France is proving that some loops are stubbornly hard to break. There are a lot of companies sliding into distress and entering restructurings — many not for the first time.
Corporate bankruptcies in France have reached an all-time high of 68,227 cumulatively over the past 12 months to September. While France is about 16 per cent of European GDP, its companies account for about 30 per cent of all the distressed loans — those trading below 90 cents on the dollar — in Morningstar’s European Leveraged Loan Index.
Just last week, lenders prepared to take control and inject equity into care-home operator Colisee while retail giant Casino proposed its second restructuring, with a potential €300mn of fresh equity from majority shareholder Daniel Křetínský, in less than two years.
In part, French companies simply have a lot of debt. The country has been a particularly fruitful hunting ground for private equity, with 4,675 leveraged buyouts since 2015, according to analysis by HEC business school, compared with 2,786 in Germany and 1,749 in Italy. Some targets of past acquisitions, such as Apollo-owned chemical maker Kem One and payment-terminals provider Ingenico, are buckling under higher interest rates.
The sorry state of the French economy — with high debt and growth at a miserly 0.7 per cent of GDP this year — does not help domestically-focused businesses. Partners Group’s property business Emeria’s unsecured debt is trading at around 50 cents on the euro, a sign that investors are bracing for losses as the credit becomes riskier. It also means that the French government is keen to cut costs, squeezing companies that depend on public spending, such as those in the healthcare sector.
Laboratory companies, for instance, rely on the government to pay for routine medical testing. The average price for medical testing has fallen more than 20% between 2015 and 2023, and is expected to decline again from 2026. That’s bad news for the likes of EQT-owned Cerba Healthcare, which racked up a €4bn debt pile through post-Covid acquisitions and whose unsecured bonds are trading at 13 cents on the euro.
There are two ways of bringing French corporate distress back down to manageable levels. The first is to stop adding to the pile, and the second is to clean out the existing backlog. It is not clear that either are happening, however.
The amount of total debt piled on to companies during buyouts may have fallen slightly, from nearly 6 times trailing ebitda in October 2021, says PitchBook LCD, to 5.7 times in the past year. But that’s still far above the debt loaded on to German LBOs at 4.33 times, and the UK’s 5 times. And debt restructurings, in France and elsewhere, feel more like a biennial standing appointment than a one and done. This cohort is unlikely to fix itself up for good.