End of pandemic aid may leave 7% of French firms in hot water

Bloomberg

As many as 7% of French firms could be in financial trouble when the government rolls back the blanket support it has provided during the pandemic, according to research by Bank of France economists.
The estimate is based on an analysis of over 200,000 balance sheets received as part of the central bank’s annual ratings exercise. It identified firms at risk by singling out those that recorded an increase in debt and a decrease in cash during the crisis.
“Between 6% and 7% of all rated companies could be confronted with difficulties when support measures are lifted,” Bank of France researchers Vanessa Doucinet, David Ly and Ghjuvanni Torre said.
The French government provided some of the most generous support in Europe during the pandemic after President Emmanuel Macron declared he would do “whatever it takes” to keep businesses afloat.
France is now starting to pare back some of that, with only targeted grants for businesses and plans for the gradual repayment of more than 130 billion euros ($158 billion) of state-guaranteed loans.
Identifying the firms at risk as government aid ebbs is key to tailoring future support. The finance ministry has said it will use artificial intelligence and Bank of France data to channel as much as 3 billion euros into repairing balance sheets.
The central bank’s researchers noted that the gross debt of non-financial companies rose by 224 billion euros between the start of 2020 and the end of March 2021, while cash holdings increased by 215 billion euros. That means the net increase in debt was only 9 billion euros.
The researchers then identified 14% of firms as being in a “sensitive” position because they recorded increases in debt combined with a decrease in cash.
They then excluded the best-rated firms before the crisis that should be strong enough to deal with the fallout and also excluded those already in difficulty before the pandemic began.
“The use of Bank of France ratings makes it possible to identify the firms in a sensitive position that are weakened but economically viable,” the researchers said.

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