Pledge

A pledge (nantissement) is the security interest that charges an intangible movable asset or a set of intangible movable assets, present or future, as collateral for an obligation, under article 2355 of the French Civil Code (Code civil). It applies to shares, receivables, bank accounts, intellectual property rights and business goodwill (fonds de commerce). In a debt raising of €20m or more, the lenders require a package of pledges: shares of the borrowing company and of its main subsidiaries, bank accounts, intragroup loan receivables and trademarks. A pledge of receivables must be made in writing, failing which it is void, and identifies the secured claim and the pledged receivables. It becomes enforceable against third parties on the date of the deed, and against the debtor of the pledged receivable from the date it is notified. A pledge over a securities account is created by a declaration signed by the account holder. On default, the creditor asks the court to award it the pledged asset or applies the foreclosure clause (pacte commissoire) provided in the agreement, which transfers ownership of the asset to it. A pledge over business goodwill excludes award by the court. In an LBO, the pledge over the target’s shares gives the lenders the possibility of taking control of it if the debt remains unpaid. When the agreement appoints a security agent, the agent holds these pledges on behalf of all the lenders.

For a €120m unitranche financing the buyout of a company, the lenders take a pledge over 100% of the target’s shares held by the holding company, over the holding company’s bank accounts and over the €40m intragroup loan receivable it has granted to the target. After a default that is not remedied, the security agent requests the award of the pledged shares for the benefit of the lenders.

• The list of pledged assets and the subsidiaries included in the scope
• The release conditions on the sale of a subsidiary or an asset
• The enforcement trigger and whether there is a foreclosure clause (pacte commissoire)
• Notification to the debtors of the pledged receivables and its timing