Turbulence in French Sovereign Debt:What Implications for Your Intragroup Financing?

As a result of political instability, budgetary constraints, and an unfavorable economic environment, French sovereign debt is experiencing a period of turbulence in the bond market. While it remains fundamentally well-rated and liquid, some concerns have emerged.
The spread between the OAT (French government bond) and the Bund (the German government bond used as a benchmark in the European bond market) has increased significantly, reaching 84 basis points as of October 14, 2025. At the same time, the yield on the 10-year OAT has converged with that of Italian sovereign debt, rated BBB+ by S&P, with a slight gap of 3 basis points on the same date. This situation could foreshadow a potential downgrade in France’s credit rating.

In the context of intragroup financing, the French tax authorities are particularly vigilant in ensuring that the terms of such financing arrangements correspond to market conditions. These conditions are assessed as of the date the intragroup financial transaction is concluded, taking into account the borrower’s credit risk and the characteristics of the financing.
This situation raises at least two key issues for determining the interest rates applied to your intragroup financing.

Impact of a Further Downgrade of France’s Credit Rating on Businesses

As of October 20, 2025, the long-term credit ratings for France, according to the three main rating agencies, are as follows:● Fitch: A+, stable outlook● S&P: A+, stable outlook● Moody’s: Aa3, stable outlook
Given the evolution of France’s economic, political, and budgetary situation—which has driven up OAT yields and led to previous downgrades—it is possible that some rating agencies may further lower these credit ratings. Notably, on October 17, 2025, S&P downgraded France’s sovereign rating by one notch, from AA- to A+, with a stable outlook.
For intragroup financing, assessing the borrower’s credit risk, primarily through determining its credit rating, is crucial for setting the remuneration of an intragroup loan.
In the event of a further downgrade of France’s rating, two main scenarios should be considered:● For companies benefiting from the likelihood of extraordinary state support in case of financial difficulties due to their ties with the state: A downgrade of the sovereign rating could correspondingly lead to a downgrade of their own ratings. This is particularly true for companies whose ratings are aligned with that of the State, as borrowers cannot, in principle, be rated higher than their country. However, this cause-and-effect relationship must be assessed on a case-by-case basis, depending on the company’s standalone credit profile and the likelihood of extraordinary support.
● For other companies: Depending on their level of exposure to the French market, the impact of a sovereign downgrade is likely to be indirect and less significant.

Incorporating Changes in Financing Conditions

The determination of an arm’s length interest rate should primarily be based on the rates observed for comparable financing arrangements between independent companies. This analysis is generally conducted as of the date the intragroup financing is concluded.
In this regard, increases or decreases in France’s financing costs observed in the market have a direct impact on the financing conditions for French companies. There is a strong correlation between sovereign debt yields and those observed for bonds issued by French companies, and more broadly, on the overall financing costs of these companies.
Although the rise in interest rates remains relatively moderate, it means that French borrowing companies may face higher financing costs. However, the sensitivity of each company to this phenomenon will vary depending on the geographical diversification of its activities.
In this context, determining interest rates for intra-group financing granted to French companies requires taking into account developments related to sovereign debt. This situation also calls for greater precision in assessing the arm’s length conditions applied to each intragroup financial transaction.