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11-10-2025 : A good LBO is like a good ice cream: it can be enjoyed for longer than you might think.

And for PAI, you could even say more than 12 years. It was in 2013 that PAI set up a secondary LBO on R&R Ice Cream. Then in 2016, it combined this asset with similar Nestlé businesses in a 50/50 joint venture called Froneri. In 2019, it created its first continuation fund to house part of its stake alongside investors from the 2013 LBO and new investors.

In 2024, Froneri generated €5.5bn in sales with 13,000 employees in 25 countries, where it has a 25% market share, ranking second worldwide behind Unilever. Froneri operates under licence for brands such as Häagen Dazs, Oreo and Nuii, as well as white label brands for distributors.

Its ROCE after tax of 9.4% is well above its cost of capital, demonstrating value creation, especially as goodwill and customer lists have been revalued on the balance sheet as acquisitions have been made, raising the bar even higher.

At the end of 2024, net debt had fallen to 4 times EBITDA, allowing Froneri to take on €4.4 bn in new debt in the form of a special dividend (dividend recap) financed by a high-yield bond issue (4.75% in euros and 6% in dollars maturing in 2032). These relative low rates shows the current strong appetite for risk in this segment of the bond market. It is true that Froneri, due to its sector, is one of the least risky issuers in the high-yield market.    

Technically, this exceptional dividend should result in negative equity (€1.9bn at the end of 2024). However, as the assets are worth more than their book value (see its ROCE exceeding the cost of capital), there is no solvency issue.

PAI has just announced the creation of a second continuation fund, which allows investors in the first continuation fund to exit with capital gains or even reinvest alongside new investors. This also allows PAI to remain a shareholder in Froneri, while generating cash return for its fund investors. There is no better recipe for raising a new fund in the future and defying the current market slump in LBOs.

At €15 billion, the entreprise value represents 10.7 times EBITDA, which is not excessive given the low volatility of cash flows and barriers to entry of its activities. As for debt, it should be just over 6 times EBITDA, which does not seem worrying in this particular case.

The continuation fund is therefore not just a vehicle set up when a fund approaches its liquidation date without having managed to sell an asset due to a lack of appetite in the market at the asking price. It is also a tool for keeping a successful group that lends itself well to successive LBOs for longer than a typical LBO cycle, much like Picard in its day, but in this case with the same sponsor (PAI).

17-09-2025 : AXA borrows money at a lower rate than the French Republic

Around 70 major European groups, including Axa, have been borrowing at lower rates than the French government for several weeks now, due to the rise in the interest rate at which the French government borrows, which is itself caused by our collective inability to reduce the budget deficit to a level that ensures the sustainability of our nation's debt.

On Friday, the insurer's bond maturing in October 2030 yielded 2.74%, compared with 2.75% for the French government bond with a similar maturity. And yet, the government benefits from a liquidity premium that investors are willing to pay to reward the excellent liquidity of its bonds, this one has an outstanding amount of €59 billion. The liquidity of the AXA bond is much lower, with an outstanding amount of only €850 million, and buyers of these bonds tend to hold them until maturity (buy and hold). Without this liquidity premium enjoyed by the French government as a result of France Trésor's excellent management of the French debt market, the government would be borrowing at around 2.90% for a 5-year debt..

A comparison of this AXA bond with a similar maturity bond issued by Allianz shows that the borrowing rates of the two groups remain similar (2.72% for Allianz), even though AXA has a marginally lower rating (AA-, the same as France, compared with AA for Allianz and AAA for Germany). AXA is therefore not penalised by the deterioration in French government borrowing conditions. Nor is there any shift from sovereign debt to the debt of large French groups, which is hardly surprising given their much lower liquidity.

In OECD countries, it is very rare for groups to issue debt on better terms than their country of origin. This was observed briefly during the 2012 euro crisis, but concerned far fewer groups than today. This situation is of course unflattering, as it is generally observed in emerging countries, where government finances can be chaotic.

For the time being, this independence of large French groups from their government's debt is fortunate. Medium-sized groups also appear to be unaffected. For example, the yield on SEB's 2030 bond fell by 10 basis points this summer, as did that of AXA and Allianz, while the yield on 5-year OATs rose by the same amount.

Variable-rate bank loans indexed to €STR or Euribor should not be affected, as long as the short-term financing costs of French banks remain unaffected. 

This will be less the case for individuals with future mortgage loans, whose interest rates are more or less indexed to long-term government bonds rates. Meilleurtaux has announced an average increase of 10 to 15 basis points in September for mortgage loans.