Haircut

A haircut (décote) is the reduction in the amount of a claim that a lender accepts in a restructuring. The creditor gives up part of the principal through a write-off, a buyback of the debt below par or a conversion into equity at a value below the claim. In a safeguard, the draft plan provides for payment deferrals, write-offs and conversions of claims (article L. 626-30-2 of the French Commercial Code). A class that adopts the plan by a two-thirds majority of the votes cast binds all its members. The court protects the dissenting creditor through the best interests test: a party that voted against must not end up in a less favourable position than in a judicial liquidation, in a sale of the business or in the best alternative solution (article L. 626-31). The plan neither writes down nor reschedules claims secured by the conciliation privilege without their holders’ consent. Atos converted €2.9bn of financial debt into equity in December 2024; with the repayment of €800m of interim financing, its gross debt fell by €2.1bn. For the borrower, the haircut is negotiated on the basis of the enterprise value used, each lender’s rank and the share of the capital given to creditors in exchange.

A company owes €200m and its enterprise value is estimated at €150m. The senior lenders accept a 25% haircut on €120m, or €30m written off, in exchange for 30% of the share capital. The debt, reduced to €170m, remains repayable over seven years.

• The enterprise value that serves as the basis for calculating the haircut.
• The comparison with recovery in a liquidation or a sale (article L. 626-31).
• The consideration: a share of the capital, a clawback instrument (retour à meilleure fortune).
• The different treatment of creditors according to their rank and their security.