Posted on 12 Dec. 2020 at 6:55Updated 12 Dec. 2020 at 18:31
Archos found a way to write off some of his debt. The company that designs and sells electronic devices will reimburse 3 million euros to the EIB (European Investment Bank) without paying a single penny.
How? ‘Or’ What ? By a sleight of hand which bears the English name of “equitization”, and which means that the initial debt is transformed into shares. Neither seen nor known, it is ultimately the market that reimburses the bank and not society.
A management trust
Explanations. Part of Archos’ debt was transferred to a management trust, a sort of French trust. This trust received free share warrants (BSAs) from the company. The trust will exercise its BSA in the market. In exchange, she will receive shares newly issued by the company. It will then sell these shares on the market and collect cash. The trust will return this money to creditors who agreed to the original transfer of their debt.
“ This solution allows the creditor to be reimbursed in the short medium term (depending on the liquidity of the security) and, in most cases, in full. Very often, the debtor company which has limited cash flow would not have been able to repay its debt on the due date »Explains Cyril Deniaud, partner at Jeantet, who is developing the technique of« equitization »with Europe Offering, a consulting company in market operations.
In order not to send the stock market price to the carpet, the sales of securities will be carried out by the trust, with in particular constraints in terms of daily volumes. In any event, this operation, which will lead to the creation of new securities, has the disadvantage of being dilutive for the shareholders.
Before Archos, on December 1st, Cybergun announced the implementation of this “equitization” program to reimburse part of its debt, as part of the accelerated safeguard procedure.
The companies could have simply made capital increases, but were not sure whether they were raising enough money. Shareholders weren’t necessarily ready to buy back securities for the sole purpose of repaying a debt the company could not honor.
A technique that could become widespread
This technique of “equitization” could be generalized among listed companies to allow the rescue of companies in difficulty, or when the level of debt is too high. The number of companies that have used loans since the covid-19 epidemic and the economic crisis has exploded. Not all of them will have sufficient cash to repay their debt.