Companies’ “COVID-induced debt”

This analysis conducted by Groupe BPCE’s economists describes the structure and development of corporate debt since March 2020.

• Corporate debt rose by an exceptional €152 billion between early March and late June this year. This total includes €50 billion in state-guaranteed loans granted to business organizations. The timing and structure of this “COVID-induced debt” differs significantly between very small enterprises and small-to-medium-sized enterprises (VSEs-SMEs) on the one hand, and intermediate-sized enterprises and large corporations (ISEs-LCs) on the other.
  In March, against a background of uncertainty and severe tensions in the securities market, ISEs and LCs sought short-term bank credit facilities (other than state-guaranteed loans) for a total of €27 billion. In April-May, VSEs and SMEs made extensive use of state-guaranteed loans and took advantage of the 6-month grace period for loan repayments.  In April, ISEs and LCs returned to the debt securities market, taking advantage of improved financing conditions.  In June, the gradual revival in business activities led to a sharp decline in demand for state-guaranteed loans.
•  At this stage, “loans have created deposits on a massive scale” (notably sight deposits) considering that net debt (debt minus investment) increased by only €8 billion (out of aggregate new debt of €152 billion). It should be noted that, at the end of June, companies had not yet drawn down a large proportion of their state-guaranteed loans. They had taken up around €50 billion of the €106 billion in these facilities granted as at the end of June (i.e. approximately 47% according to BPCE estimates) and 1 out of 3 SMEs awarded one of these state-guaranteed loans declared they had not yet made any use of it, and 26% had only drawn down a small fraction (BPI survey).
  However, net debt is expected to increase sharply between now and the end of 2020 with the anticipated decline in investments (discontinuation of state aid, extremely slow recovery in business activities, end of the grace period for loan repayments), to which will be added the drawing down of the outstanding balances of state-guaranteed loans. 
• Debt is a major concern for many VSEs and SMEs eager to avoid significant shifts in their balance sheet structure, as shown by the Crédoc-BPCE survey. In this context, half of the VSE-SMEs included in the survey would agree to receive a minority, and temporary, capital contribution. Funds supported by a regional cooperative bank would be sought by 19% of the companies surveyed, compared with 30% for public or quasi-public investment funds, and 29% for regional investment funds supported by public and/or private actors.