Overview

Since the Paris Commercial Court opened safeguard proceedings towards Heart of La Defense (HOLD) and Dame Luxembourg (DAME) in November 2008, lenders have become more wary.

They are wary both of sponsors and borrowers in LBOs and of structured finance transactions attempting to use the newly-instituted French safeguard proceedings (procedure de sauvegarde) regime to gain leverage over their lenders in restructuring negotiations by neutralizing (or threatening to neutralize) the enforcement of their security package.

The Paris Court of Appeal’s decision of 25 February 2010, rescinding the opening of the safeguard proceedings of Hold and Dame, provided relief to lenders. The Court of Appeal explicitly held that safeguard proceedings should not be used (i) by a borrower merely to suspend the application of contractual provisions of its loan agreement that it was not able to modify consensually, or (ii) by a grantor of credit support merely to paralyze the creditors’ contractual right to appropriate the collateral securing their claim (pacte commissoire).

A similar ruling was made by the same Court on the same day in the so-called “Mansford” case, another real estate acquisition structured financing.

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