“Covid-19 outbreak – The European Commission publishes a decision approving the French support schemes”

In accordance with the Communication regarding the Temporary Framework for State aid measures aiming at supporting the economy in the context of the current COVID-19 outbreak (see our newsletter dated 20 March 2020), the European Commission (the “Commission”) published a decision approving the French support measures on 22 March 2020.

Within the last couple of days, France notified support measures to the Commission under the Temporary Framework. These measures consist of three support schemes which mainly encompass public guarantees on loans:

• The first measure (Measure A) enables the French public investment bank Bpifrance to provide State guarantees on new or existing investments and working capital loans withan initial maturity of 2 to 6 years. SMEs and intermediate size companies (“ISC”) will be the beneficiaries of such aid.

• The second measure (Measure B) enables Bpifrance to provide State guarantees on new or existing committed credit lines financing the operating cycle. Eligible loans may have an initial maturity of 12 to 18 months, renewable once. Again, SMEs and ISC will be the beneficiaries of these measures.

• The third measure (Measure C) enables the grant of a State guarantee to banks on portfolios of eligible loans to companies owned by credit institutions or financing companies. To be eligible, the credits must comply with specific contractual provisions which are detailed in the decision. All types of companies, regardless of their size, may benefit of such aid. However, certain activities of the financial sector are excluded, credit institutions in particular. Real estate investment companies are also excluded.

These French schemes are expected to mobilise:

• €700 million for measures A and B; and
•  €300 billion for measure C.

The Commission’s decision also highlights that the undertakings which were in difficulty on 31 December 2019 cannot benefit from the measures in relation to point 25(h) of the Temporary Framework. The French schemes may however be granted to undertakings that are not in difficulty and/or to undertakings that were not in difficulty on 31 December 2019, but that faced difficulties or entered in difficulty thereafter as a result of the COVID-19 outbreak.

All in all, the Commission concluded that the notified measures are necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework. To be more specific:

• The maximum duration of the guarantee does not exceed 6 years.

• The guarantee premiums provided obey the provisions set out under point 25(a) of the Temporary Framework.

• Regarding measures A and B, the maximum amount of the underlying instrument cannot exceed 25% of the total turnover in 2019, in accordance with point 25(d)(ii) (see section 2.7.1.3 of the decision). Regarding measure C, the maximum amount of the loans cannot exceed either 25% of the total turnover in 2019 or the double of the annual wage bill. It is therefore compliant with points 25(d)(i) and (ii) of the Temporary Framework.

• The guarantee does not exceed 90% of the loan principal, in accordance with point 25(f)(i) of the Temporary Framework.

•  The guaranteed amount takes into consideration the evolution of the underlying instrument when the size of the loan may be depreciated over time, as defined under point 25(f)(iii) of the Temporary Framework.

•  The undertakings which were in difficulty on 31 December 2019 cannot benefit from the measures in relation to point 25(h) of the Temporary Framework. The measure may benefit to undertakings that are not in difficulty and/or to undertakings that were not in difficulty on 31 December 2019, but that faced difficulties or entered in difficulty thereafter as a result of the COVID-19 outbreak.

• The schemes provide safeguards with regard to potential indirect aids in favor of credit institutions or other financial institutions. Such safeguards aim at limiting undue distortions to competition in accordance with the Temporary Framework (points 28 to 31 of the Temporary Framework). By requiring that the total amount outstanding per beneficiary be maintained, the safeguards ensure that these institutions pass on, to the largest extent possible, the advantages resulting from the measures notified to the beneficiary companies.

The three measures have been approved by the Commission. Consequently, no notification will be necessary for aid schemes granted to undertakings under these regimes. Nonetheless, a number of questions remain unanswered with regard to the financing of these aids and how such aids will be granted to undertakings in practice. Will the State select the aid requests? Will it be granted on a “first come, first-served” basis? Or has the budget already been calculated and set to ensure all potentially eligible beneficiaries can request the aid? All of these questions will undoubtedly be debated in the coming weeks.