BNP Paribas, Crédit Agricole and Natixis in French State Bank Recapitalization Program

Cleary Gottlieb acted as counsel to BNP Paribas and Crédit Agricole in connection with the issuance of €2.55 billion and €3.0 billion, respectively, of deeply subordinated perpetual securities to a French state-owned entity as part of the French bank recapitalization program. The deals priced on December 10 and closed on December 11.

The securities were issued to the Société de Prise de Participation de l’Etat (SPPE), a company established by the French State as part of the government’s plan to provide capital and liquidity to French banks. SPPE is one of two companies established under this program. Its role is to invest in equity and hybrid equity instruments, while the other company provides short and medium-term debt financing to French banks.

BNP Paribas and Crédit Agricole were among six French banks that issued a total of €10.5 billion of hybrid securities to SPPE in its first investment round. The issuances followed the approval by the European Commission of the SPPE program, under European State Aid rules that limit the ability of EU Member States to provide subsidies to companies.

The securities are deeply subordinated, perpetual notes that qualify as “Tier 1” capital for bank regulatory purposes. Their terms are similar to other such securities that have been issued by the banks in the past. However, the banks also undertook in a separate agreement to pay a premium upon repurchase or redemption of the securities, with the amount of the premium increasing annually. This was part of the deal reached with the European Commission, which sought terms that will encourage the banks to repay the notes as soon as possible.

Cleary Gottlieb also represented Natixis in connection with its issuance of €1.9 billion of similar deeply subordinated notes to its principal shareholders, Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne. Each of the shareholders issued its own deeply subordinated notes to SPPE under the French recapitalization program, and in turn used most of the proceeds to subscribe to back-to-back issues by Natixis.