‘Refinance as soon as possible’ says expert panel

COMPANIES that need to refinance their debts should do so as soon as possible, according to banking experts and business leaders speaking at a Yorkshire Bank economic lunch.
 
The economic crisis of late 2008 left banks reluctant to agree financing terms longer than three years, while in 2007 five-year deals were common. These timeframes are expected to leave the banks, which still suffer funding gaps, handling a substantial demand for cash in 2012. 
 
Tom Vosa, pictured, Yorkshire Bank’s chief economist said: “The banks have to find £800bn by the end of 2013 but the best we can come up with is £500bn so there is a credit shortfall. He added: “If you’re under two years on five-year lending now is the right time to refinance.”
 
Finance chiefs from major regional businesses such as The Manchester Airports Group, the Co-operative Group, the Northwich baker Frank Roberts & Sons and local Plcs Daisy and NWF, attended the event hosted by Yorkshire Bank Corporate & Structured Finance at its Manchester office. The advisory community was represented by Rothschild and DLA. 
 
“For going concern sign off there’s a lot of pressure from auditors for businesses to demonstrate future financing availability,” said Roger Morgan, pictured, head of treasury at the Co-operative Group.

“It’s certainly welcome that five-year bank deals are becoming more prevalent. It’s important to put a refinancing strategy in place, get it approved by the board and then execute it. It must also be flexible enough so as not to be hostage to any short term blips in the world economy.”
 
John Newman, pictured right, corporate area director with Corporate & Structured Finance said rates had levelled out. “Three or four years ago it was a corporate market. Banks were throwing money at corporates at low margins. Then it became a bankers market when things got very tough. It’s levelled off a bit but there’s a degree of balancing out still to work its way through.”
 
Mr Vosa pointed out that the UK suffered the biggest withdrawal of foreign financing of any economy – due to the loss of Irish, Icelandic and US-based institutions – so credit will remain scarce.

“Scarce credit means expensive credit,” he said, stressing that some sectors, such as property, will find it tougher than others. “Would anybody consider taking non-bank finance. What alternatives are there out there?” he asked.
 
Phil Tarimo, Yorkshire Bank Corporate & Structured Finance area director, new business for the North West and Midlands, said there were more providers in the market, “but I’m not sure if we’re yet seeing a strong take-up”. 
 
Alfred Chou, pictured, director, debt capital markets in the National Australia Bank’s wholesale banking division, said: “Non-banking institutions, such as pension funds, are looking to put money to work and invest in fixed income assets.

“From where I sit in London we do get a tremendous amount of enquiries about capital market alternatives. We’re certainly seeing a lot of interest in US private placement – seven, 10 or 12-year maturity.”
 
Mr Vosa explained that agriculture was currently attractive to investors and as it always outperforms the market in a recession.  

Jonathan Ford, below right, finance director at Wardle-based listed food, fuels and agricultural feed distributor NWF admitted arable farmers were doing well but painted a challenging picture for dairy businesses.

“The input costs, such as feed, diesel and insurance, have gone up but the milk hasn’t,” said Mr Ford who predicts further consolidation among dairy farmers.

Byron Cooper, finance director at Frank Roberts, said: “Any commodity inflation pressure on bread will be challenged by customers including the supermarkets. There’s a lot more pressure within the industry on flour buying strategies and getting the right financial instruments in place. That coupled with fuel and wage inflation make it a tough trading environment.”

Mr Vosa predicts the Bank of England will start unwinding, or disposing of, asset purchases made under its £200bn quantitative easing scheme towards the end of the year, and push up rates to 1%. He does not expect a rise in house prices.

He said Chancellor George Osborne could be in a better-than-expected position at next week’s Budget following a pre-VAT rise consumer spending increase and fuel price rises.

Chris Archer, pictured left , Yorkshire Bank Corporate & Structured Finance corporate finance director, said that he had noticed a shift in emphasis recently with corporates starting to focus on acquisition opportunities and the availability of debt for deals whilst continuing to focus on business and economic risks to their businesses.

Greg Cant Director at Rothschild said: “We have seen a material increase in deal activity over the last six months which is encouraging. This has not been purely driven by private equity as we have seen increased corporate activity – businesses such as St Tropez, Omega Red and Kiddycare have all been acquired by corporates.”

Jonathan Watkins, pictured, head of corporate at DLA’s Manchester office, added: “Notwithstanding the notes of caution, it is encouraging to see a pick up in interest from clients looking at acquisition opportunities and seeing significant interest from overseas corporates looking to pick up what they consider to be attractively priced quality assets.”