Photo of Rajiv Mareachealee, Crédit Agricole and Baudouin Courau.

In 2011, Faurecia was in a challenging situation. The company had to reimburse a shareholder loan, and refinance its main credit facility, could not ask for more funding from its banks, but at the same time needed to bring more banks on board. Faurecia also needed to diversify its funding sources and remove the support burden from its main shareholder – all in the midst of a major financial crisis, and dwindling credit capacity from banks.

In less than six months, Faurecia completely changed the profile of the company’s funding structure – from a bank and- shareholder debt profile, to a market funding enterprise where bank lines became a backup rather than the main funding source.

To achieve this diversification and address new categories of investors, Faurecia issued two high-yield bonds. The first was a €350m five-year issue in November 2011, followed in February 2012 by a €140m tap issue – at this point, the company felt it was important to build the group’s ‘credit identity’ and become a recognised issuer of debt. The second was a €250m seven-year unguaranteed issue in April 2012. Speaking about the decision to pursue high-yield issuance, Baudouin Courau, Group Treasurer at Faurecia, outlines four major reasons why that route was taken. These were:

• No additional capacity from the bank loan market was required.
• Allows maturities beyond five years.
• Allows bank lines to be kept for local funding, CP programme backup, derivatives.
• The syndicated facility becomes a backup line. Nevertheless, there were a few drawbacks, which included:
• At least one rating is mandatory.
• Yield and issuance costs.
• Documentation which is not primarily designed for industrial companies.
• Multiple constraints due to covenants and restrictions.

“The ratings process takes time because the rating agency needs to understand the business and meet the management. The ratings agency will carefully watch how the company delivers what it has budgeted, planned, and communicated to the market. It requires significant top management involvement. The company must understand rating agencies’ models and restatements,” adds Courau.

But thanks to very thorough preparation, the bond issuances were well received by the market, as demonstrated by the additional tap issue. Cleary Gottlieb Steen Hamilton LLP acted as counsel to Faurecia for the issuance of the high-yield bond issuance and Faurecia’s ratings advisor was Crédit Agricole CIB.

At the same time as the company issued its high-yield bonds, Faurecia also refinanced its syndicated loan facility. Salans acted as counsel for this. And in a bid to further diversify its funding sources, Faurecia also undertook a €58m German private placement market.

Summarising his team’s achievements, Courau says: “Not only did we simultaneously refinance our credit line and manage to extend our bank syndicate despite a difficult banking market, we also issued two bonds with quite different structures, grabbing opportunities in a somewhat volatile bond market. In addition, we had to ensure a perfect consistency between three different debt documentations, satisfying banks’ and investors’ requirements (in particular in terms of covenants), without impairing the group’s ability to develop its business and implement its long-term strategy. It was a tough challenge, but we succeeded.”