“As part of an acquisition at the head of a company managing an aging fleet, I accompanied a potential buyer who, instead of excluding the obsolete machines from the scope of his project, offered to restore them all. insolvency proceedings for those assets that cannot be monetized, and thus greens up his proposal. This commitment was received positively by the Court and certainly strengthened the case. In some cases, such a commitment may even matter between two equivalent proposals.” explains Alexander Koenig, legal specialist in charge of the restructuring and bankruptcy practice at Stephenson Harwood in Paris.
ESG Criteria: A Good Restructuring Guarantee?
Informing about ESG performance gives the company a better chance of improvement, according to an analysis by AMO Strategic Advisors, a strategic communications consulting group led by Havas Paris, titled “Where the real value lies: Informing ESG indicators to support the restructuring process.” According to the study, ” ESG criteria and ratings allow reliably restore the real potential of the depreciated asset. They are becoming increasingly important for financial actors in determining the viability of a company undergoing restructuring.. »
Under the legal framework of a business takeover at the helm of the Court, buyers must meet 3 criteria: retaining employment, taking over at the best price, and providing performance guarantees. In a column published in Les Echos on May 31, lawyer Baptiste de Fresse de Montval of Oplus advocates introduction 4e criterion for meeting environmental planning objectives. “In this way, the courts may give preference to a buyer implementing a project that falls under the objectives of environmental planning.”He wrote.
Other Time Frames in the Context of the Cash Emergency
A crisis first leads to a cash impasse for a company that needs a fresh injection of fresh cash. At the same time, it must change its economic model to ensure its sustainability and/or return to profitability if it finds itself in a loss-making situation. “When restructuring, the topic of integrating ESG criteria looks a bit avant-garde: in a situation where there is an urgent need to save the cash flow of companies and save jobs, communication about the non-financial goals of the funds / long-term perspective will not be a priority. However, looking forward, especially in sectors sensitive to the environment or people, we can expect companies that are slow to develop and implement an effective ESG strategy to face restructuring issues earlier or more than others.” , emphasizes Alexander Koenig.
For example, Altéo Gardanne, a Marseille-based company accused of dumping red mud into the Mediterranean, saw its operations affected by tightening environmental standards and had to go through bankruptcy proceedings at the end of 2019. The crisis experienced by the Orpea-listed group, which had a very good ESG rating, nevertheless exposed the limits of the ESG rating, the reliability of which was criticized, and did not save it from having to resort to the prevention of difficulties procedure for refinancing of 3.2 billion euros . .
Communication about your ESG strategy should be based on two axes: financing and repositioning of the company’s business model.
Easy access to debt
Increasingly, banks and investment funds are becoming familiar with European standards that require compliance with ESG criteria. “We are already seeing consideration of ESG performance companies of certain financial players dyears of company valuation or credit rating in search of funding. And this phenomenon is destined to increase as the rules develop. A company with a favorable ESG rating can have easier access to debtexplains Alexander Koenig, but beware Clearly, the borrowing tap is not closed to companies – and there are many – that have not yet implemented ESG policies.”. It’s just that, other things being equal, the cost of borrowing will be higher for a company that has not yet incorporated ESG goals into its business plan, compared to a company that is more ESG advanced.
With regard to the investment side of capital, new shareholders and M&A, the integration of ESG issues is reflected in the implementation of ESG reporting by data collection, formatting and reporting as part of pre-acquisition due diligence. “Ultimately, companies trying to collect and provide their investors with elements regarding their ESG risks and action plans should also increase their attractiveness compared to those who do not,” according to the lawyer.
ESG numbers tell a lot about the future performance of a depreciated asset., according to AMO Strategic Advisors experts. Proper communication can be critical in a complex restructuring process.
For this, according to AMO Strategic Advisors experts, it is important ” determine what is important for the business model”, because some indicators do not have the same effect on each of them. Thereby ” The impact of fuel efficiency on airline profits » differs from ” impact on investment bank “. Instead of taking a general approachcompanies should, according to AMO Strategic Advisors experts, develop an individual ESG rating system, which focuses on tangible and intangible issues that directly concern them. This includes defining a set of specific quantitative and qualitative indicators, with a clear technical protocol defining the definitions, scope, application and presentation of each non-financial accounting measure. In this way, stakeholders receive a real guarantee of the reliability of the results.
Finally, and most importantly, companies, having identified the most relevant indicators, “ should focus on developing a compelling narrative.” about their ability to create value. This discourse allows the involvement of key stakeholders (banks, lenders, suppliers, restructuring) in a collective effort to improve key performance indicators and ensure that the depreciated asset creates long-term added value. It may even “prove to be decisive in terms of the viability of funding options “.
The question to be asked is: what information am I reporting? In what form? “And if listed companies have to meet set standards, it’s harder for SMEs and ETIs where they are less structured and where standards don’t exist yet,” emphasizes a lawyer working on cases where ESGs first appeared in the industrial sector, with polluting industries prone to displacement and capital intensive. “My experience first led me to understand the ‘E’ (environment) of ESG, for example in the event of a site shutdown, management of its cleanup. “.
As part of the repositioning, non-financial should become increasingly important when assessing companies in a bankruptcy situation. Not to mention the fact that this is a criterion for attracting young talents by an employer and a competitive advantage.