IPP Policy Briefs n°70 - June 2021

Will French companies be able to repay their state-backed loans (PGEs)?

IPP Policy Briefs n°70

June 2021

Authors: Laurent Bach, Nicolas Ghio, Arthur Guillouzouic, Clément Malgouyres

Contacts: arthur.guillouzouic@ipp.euclement.malgouyres@ipp.eu


logo-pdf-minWill French companies be able to repay their state-backed loans (PGEs)?



During the health crisis, the French government set up a system of guaranteed loans to deal with a context of great uncertainty. The loans were granted to companies by banks, with the State guaranteeing a share of the amount, which depended on the size of the company. PGEs (Prêt garanti par l’État) were very popular with French companies in 2020, with very high take-up rates, including among the largest companies.
The growth of these loans has raised fears that the debt burden will quickly become unsustainable for many companies. In this policy brief, we assess the ability of recipients to repay these loans, using very detailed administrative data. Companies that participated in the scheme were often among those most affected by the health crisis, but banks excluded those that were particularly unprotable before the crisis, while more profitable firms were less interested. Analysis of company balance sheets indicates, as one might expect, that the gross debt of recipients has risen very sharply.
However, this was not in fact accompanied by an alarming increase in net debt, because some beneciaries received other subsidies and others used the PGE scheme only as a precaution. Until the end of 2020, the investment capacity of recipients did not seem to have been aected compared to the companies that did not use the PGE.

Finally, bankruptcy rates were particularly low for PGE participants at the same date, including in the sectors most aected by the health crisis. All of these elements indicate a good repayment capacity, provided of course that macroeconomic conditions continue their recovery trajectory.

Key points:

  • One third of French companies have used the scheme, a frequency of use that is 10 times
    higher than for the programs available during the 2008-2009 crisis. In the sectors most
    affected by the crisis, the take-up rate exceeded 50%.
  • The gross debt ratio of PGE recipients increased by almost 10 percentage points, but the
    net debt ratio remained stable.
  • Investment fell in the first half of 2020, then subsequently recovered at the same rate
    among PGE recipients and non-recipients.
  • The probability of bankruptcy over the period up to March 2021 is less than 1% among
    beneficiaries, including among those with the largest drop in sales. The probability of
    bankruptcy is more than twice as high among firms that did not receive a PGE.
  • Based on the low probability of bankruptcy among PGE holders, as well as the trajectory
    of rates observed in European bond markets, our analysis suggests that the budgetary
    cost of the program will be moderate.