Loan acceleration

Acceleration (exigibilité anticipée, or déchéance du terme) allows lenders to demand immediate repayment of the whole loan before its contractual maturity, including accrued interest. The credit agreement sets out the cases, called events of default: payment default beyond the grace period, breach of a financial covenant, misrepresentation, cross default on another debt above a threshold, change of control, opening of insolvency proceedings. The bond template of the Euro PP Charter of October 2019 includes this list and leaves the cross default thresholds to the parties. The French Civil Code deprives the debtor of the benefit of the term if it fails to provide the promised security or reduces the security backing the obligation (article 1305-4). Acceleration incurred by the borrowing company cannot be enforced against its guarantors (article 1305-5). The French Commercial Code restricts the clause when the company is in difficulty. Any clause that increases the debtor’s obligations solely because of an ad hoc mandate or a conciliation is deemed unwritten (article L. 611-16). The judgment opening safeguard or judicial reorganisation proceedings does not make claims not yet due payable (article L. 622-29). In practice, a covenant breach leads to a restructuring of the debt or a renegotiation of terms, because immediate acceleration would risk precipitating the group’s default. For the borrower, the negotiation covers grace periods, cross default thresholds and the lender majority required to declare acceleration.

A group owes €80m in unitranche debt and €30m in Euro PP. It pays a €2m interest instalment four business days after its due date, within the five business day grace period set in the agreement. No event of default occurs. The Euro PP cross default clause has no effect.

• The list of events of default and the remedy period for each.
• The cross default threshold and the difference between cross default and cross acceleration.
• The lender majority required to declare acceleration.
• The statutory neutralisation linked to the ad hoc mandate, conciliation and safeguard.