Participatory loans: the last pieces of the puzzle fall into place

Posted on Apr 2, 2021, 8:17 PMUpdated Apr 2, 2021, 10:06 PM

The plan promoted by Bercy to allow businesses affected by the crisis to rebound thanks to new kinds of financing is taking shape. Centerpiece of this system involving the State guarantee, insurers have been reassured for a few days about the requirements of supervisors.

They have also appointed this week management companies that will help them invest in equity loans supposed to be distributed to SMEs and midcaps from this month.

The government is banking on these eight-year loans, recorded as quasi-equity, to inject around 14 billion euros in companies and support the recovery (an amount supplemented by 6 billion euros in bonds).

This device must take over from the loans guaranteed by the State (PGE) massively distributed by the banks since the spring of 2020. The insurers called upon to invest in these loans via a fund, are working for this vehicle to be set up in mid -April.

After having chosen a management company, Eurotitrisation, to manage the whole, they selected the companies which will be required to process loans of more than 10 million euros. These are Amundi, Eiffel IG, Capza, BNP Paribas AM, Tikehau and Aviva Investors France.

Four-eye analysis

These management companies will co-decide with the banks of the financing granted to companies. It’s a four-eye analysis ”, explains “to Les Echos” Franck Le Vallois, the Managing Director of the French Insurance Federation (FFA).

The point is important for investors.

Banks and their insurance subsidiaries are very motivated by the system. However, non-bank insurers appeared to be more cautious.

Some have publicly expressed concern about information asymmetry between them and the banks. Naturally in charge of distributing loans, they will only keep 10% on their balance sheet. Hence fears about the alignment of interests with investors.

To allay these concerns, insurers have also insisted that all loans housed in the fund be well distributed in terms of sizes and sectors involved, in order to balance the risks.

And this, knowing that loans of less than 10 million euros – potentially 10,000 to 12,000 in number – will be handled by management companies offered by the banks. In other words, the bank management subsidiaries will have a key role in the system.

Low capital requirement

Insurers are also set on the requirements of supervisors vis-à-vis those who will invest in the fund dedicated to participating loans. The banking and insurance policeman, the Prudential Control and Resolution Authority (ACPR) officially transmitted its analysis at the beginning of the week.

At the launch of the fund and taking into account the guarantee by the State, “The capital requirement will be low or even equivalent to holding government securities”, assures Franck Le Vallois, even if “The capital requirement could be a little higher for internal models” insurer risk analysis.

For the leader of the FFA, this treatment is “Neither blocking nor incentive”. Nonetheless, insurers have repeatedly insisted that investments in the equity loan fund, which are supposed to provide them with a return of 2%, should not be costly in terms of equity, like investments in government securities. .

It remains to be seen which insurers will engage and at what level. “These are investments that should be quite interesting seen by investors”, said last Tuesday David Simon, head of investments, finance and risks for the insurance group AG2R La Mondiale.

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