France Seeks Fix for Solvency Crisis When Loan Guarantees Expire

(Bloomberg) -- The French government is looking at ways to avoid a solvency crisis ripping through the economy when the state’s emergency loan guarantees expire a year from now.

French firms have been heavy users of the safety net put in place when authorities shut down economic activity to contain the spread of the coronavirus. Banks have refused less than 3% of requests under the plan, and the government had backed almost 100 billion euros ($112 billion) of loans as of June 5.

Finance Minister Bruno Le Maire said Thursday there are many companies that might struggle to remain solvent when they have to pay back the money. His ministry is examining options including converting them to equity loans.

Winding down loan guarantees and withdrawing aid is a challenge for governments as they want to avoid precipitating a second economic crisis. France has already started to pare back state financing of furloughs and is working with unions to create new long-term programs to support jobs in a more targeted way.

Le Maire said that while there is time to find a solution, he’s already begun consultations.

“There are many solutions on the table that should allow us to avoid a cascade of bankruptcies by avoiding the problem of business solvency,” Le Maire said on France Inter radio.

France’s central bank governor Francois Villeroy de Galhau expects between 10 billion and 30 billion euros in capital will be needed to help viable firms with financial difficulties to recover at the same speed as demand. He has said banks and funds should take the lead on deciding which companies to invest in, but that the private sector efforts alone are unlikely to be sufficient.

“We need to think of a kind of co-investment between public funds that invest in capital, which is quite new, and private funds that take the decisions,” Villeroy said on France Info radio last week.

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