Europe’s largest companies are staying away from the special financing arrangements put in place by governments. In France, even before the presentation of the state-backed loan (Prêt Garanti par l’Etat – ‘PGE’), several large caps had already secured additional liquidity to get them through the first few months of the crisis, such as Airbus, which announced the signing of a €15 billion syndicated loan on 23 March. Other such raising included Schlumberger with a 1.5bn Revolving Credit Facility and Diageo, who launched and priced a USD $2.5bn bond offering.

These operations have been put in place with a speed that contrasts sharply with the time taken to access financing covered by state guarantees. They mainly apply to a section of companies who obtain financing through Bonds and Commercial Paper (CP), who are generally equipped with 5-year Revolving Credit Facility (RCF) to back-stop a possible closure of the CP markets, and who can represent important side-business for the ECM, DCM and Derivatives desks of banks.

For the treasury teams of these large international groups, as soon as the crisis emerged, the aim was to quickly find a global solution for securing additional liquidity. In the interests of speed, the banks immediately responded to this need by offering their best corporate clients the commitment to underwrite the additional financing, with a view to syndicating the transactions at a later stage. On these “jumbo” deals, with amounts ranging from €1 to €15 billion, the banks nevertheless applied margin grids that were significantly higher than those of a traditional pre-crisis RCF, given the higher drawdown risk and the new constrained nature of their balance sheets caused by the crisis. Typically, for a short bridge financing of one year, with a two-year extension option, the ratio between the margin for the new line to be put in place and the margin for the classic RCF, is up to four times greater… on a maturity two and a half times shorter!

Whilst the option for a simple drawdown of an existing RCF was a possibility, companies were convinced by the gravity of the situation, they needed to ensure their banks would continue to stand by them should the crisis worsen. And even with a four-fold increase in margins, such financings remain attractive to those borrowers with a good risk profile. They are also attractive for banks that play on the arbitrage between different opportunities and ensure a juicy flow of side business. Had they opted for a French state-guaranteed loan, the price of the guarantee (50 bps in the first year and 100 bps in the second) would, in most cases, have been higher than the margin of the new financing. Due to its country specific idiosyncrasis, the restrictions imposed on the amount (25 % of French turnover), its higher overall price, not to mention the uncertainties and slowness of implementation, the state-backed loan was not the preferred option for large international companies.

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