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Factoring: a robust financing solution in an economic downturn

In the January edition of Décideurs magazine, Thibaut Robet and Gaëtan du Halgouët, founding partners of Fibus, outline the many benefits of factoring, including during an economic downturn, and share their experience in corporate restructuring.

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Fifteen years ago, Gaëtan du Halgouët and Thibaut Robet founded Chateaudun Crédit, a French specialist factoring consultancy. They have agreed to share their corporate restructuring experience with us.

Décideurs. What was it that led you to set up a factoring consultancy firm?

Thibaut Robet. Negotiations for a factoring agreement are often complex and technical to set-up. Unlike traditional bank loans, factoring has wider impacts company's organisational set-up. The financing which it creates will depend on a multitude of parameters such as client risk, payment terms, invoicing method, recovery method or the type of agreements signed between the company and its clients. In 2005, to help companies rise to these challenges, we decided to set up the first specialist factoring consultancy firm.

Where is Chateaudun-Crédit today?

Gaëtan du Halgouët. Today, our team of 35 employees supports over 1,000 French and international clients in helping them to negotiate, set up and optimise their financing of receivables or inventories. This financing, all told, amount to around 6 billion euros. Down the years, we have integrated and developed the skills and tools necessary to be successful in our inventory factoring and financing operations for our clients.

T. R. In June, 2018, we took over Cetrafact, a factoring coordination software programme. The development and integration of this software with our clients is led by a team of ten consultants and developers. Cetrafact has seen strong growth and will hire four new employees by March 2021. It is a genuine asset for our clients.

"Our role is to help clients choose the right partner"

You regularly work alongside companies undergoing restructuring. What are the primary challenges involved in such situations?

G. du H. What matters, more often than not, is the urgency on the one hand, and the scale of financing on the other. If a factoring agreement is already in place, we work out whether it is possible to gain more significant financing from the existing partner and, if not, quickly change factors. Faced with bankruptcy and legal administration, factoring companies do not all respond in the same manner. Some of them offer support, whilst others restrict their financing, and some even prefer to pull out altogether. Our role is to help clients choose the right partner. In the framework of a corporate restructuring operation, financial management is under immense pressure. We ensure that no particular financing is imposed on the company strategy by its environment and that it can make an enlightened and objective choice.

T. R. Precisely, banks around the negotiating table often seek to impose their own factoring subsidiaries. And yet, the choice of a factor is key to the company. Calling on our services allows companies to better use the leverage of competition between market stakeholders to gain the best possible offer, as well as to transfer the pressure imposed by banks towards a third party over whom they have less control. In the framework of out-of-court insolvency proceedings, this gives companies a very effective negotiating lever with creditors.

Can you provide us with examples of some solutions suited to the context of corporate restructuring?

G. du H. We recently carried out an assignment for a French automobile parts manufacturer that employed 600 people. This subsidiary of a US group could no longer withstand the sharp drop in business during the Covid lockdown and had to file for bankruptcy. As is often the case, the company already had a factor, which was a subsidiary of one of the banks in its pool. Initially, our role was to seek a new factor as an emergency, to deal with a suspension or financial stoppage by the factor during the observation period. Very quickly, we set up a new factoring agreement for the Newco which took over the assets under the assignment plan in court. In this very complex case, the court agreed to let the shareholder also make the takeover.

T. R. We also supported a company in the oil & gas service sector for the takeover of French drilling activities from a large group. As these business activities were suffering heavy losses, we had to convince a factor to support the turnaround project, whilst also negotiating competitive rates. The oil and petroleum sector has been heavily affected and we had to actively negotiated with credit insurers to ensure we had sufficient guarantees to cover the company’s clients and ensure financing of receivables by the factor.

G. du H. These examples show that we are far from simply negotiators. We coordinate projects from start to finish. Several core professions and skills are required to implement a factoring programme, from legal to IT to, negotiation. Our role is to co-pilot and coordinate operations with management and all related departments in the company, teams of factors, credit insurers, and all the time respecting often tight deadlines.

T. R. Turnarounds companies, their shareholders or their legal teams, call on our services thanks to our ability to diagnose margins for manoeuvre, to recommend concrete solutions and to implement action plans. Our advanced knowledge of factoring stakeholders and ability to launch urgent negotiations allows us to secure the very best terms and conditions.

What is your position in this market?

T. R. Originally, our work was focused on assessing the potential of financing and negotiating terms and conditions with factors. It has expanded down the years, to include all project stages, including negotiation of clauses and revision of agreements, discussions with legal teams and external auditors, and technical implementation and coordination of the agreement on a day-to-day basis via our factoring software. Moreover, we support companies during the entire lifetime of a factoring programme. And finally, with Haro, our stock pledge entity, we assist companies in seeking additional financing by using their in inventories as security.

"We are far from simply negotiators. We coordinate projects from start to finish"

What was the purpose behind the creation of Haro in 2010?

T.R. The creation of Haro was part of our desire to expand our factoring consultancy business to include another important component of working capital inventories. With Haro, we consolidated our national coverage with five regional offices. Haro became the second largest market operator and offered an innovative alternative to the usual practices in pledged inventory ?

What contribution does Haro make in pledged inventory ?

T.R. We had observed that this market was undergoing steady growth, with very few stakeholders and innovation. We developed a new auditing and stock valuation method so as to offer banks increased security. We also innovated by creating an extranet, called "mongage.com", aimed at automating and computerising all discussions between a company, Haro and the bank. This collaborative online platform allows us to supervise and value inventories in a constant manner. It manages all legal documents, visit reports and stock performance indicators. As a result, we provide increased security, more services and more simplicity to pledged inventory stakeholders.

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