Margin

The margin is the fixed component of the rate of a floating rate loan: the rate for each interest period equals the benchmark rate, Euribor for a euro loan, plus the margin. Expressed as a percentage or in basis points, it pays for the credit risk the lender takes on the company, its rank in the debt structure and the term of the financing. The agreement sets an initial margin and provides where relevant for a ratchet that adjusts it according to the company’s leverage, tested at each covenant date. According to the France Invest and Deloitte study of March 2026, 57% of the private debt transactions carried out in France in 2025 included at least one ESG indicator that adjusts the interest rate. The Haut Comité Juridique de la Place Financière de Paris stated in 2017 that the parties may provide that the index will not fall below 0% when interest consists of an index and a margin, which preserves the lender’s margin. Without an express provision, the only implicit floor applies to the total rate of a loan governed by the French Civil Code, which cannot fall below 0%. For the company, the margin is compared with the all-in cost of the financing, which adds the arrangement fee, any original issue discount (OID) and call protection. Lenders ask for a margin increase in return for a waiver or a covenant deferral.

A company borrows €80m at three-month Euribor plus 450 basis points. The ratchet reduces the margin by 25 basis points below 4.0x leverage, then by a further 25 basis points below 3.5x. If its leverage falls from 4.2x to 3.4x, the margin drops to 400 basis points and the annual interest charge falls by €0.4m (€80m × 0.50%).

• The initial margin level and the leverage ratchet
• The adjustments linked to ESG indicators and how they are measured
• The margin increase required in return for a waiver
• How the margin interacts with the floor on the benchmark rate