Debt finance and how you can fund for future growth

From start-ups to scale-ups, the availability of debt finance is vital to businesses across the region.

The funding landscape has also continued to evolve with a wide range of debt related products outside of traditional bank loans and overdrafts that are available to support growing businesses.

In a recent webinar with Clearwater International, a panel of experts explored the current themes in the debt markets and the debt finance options available to businesses to help them make informed choices to accelerate their growth.

Panelists included Tom Barnwell, Partner, Clearwater International, James Painter, Investment Director, Palatine, Simon Dixon, Head of Leveraged Finance North Mid-Market Financial Sponsors, HSBC, Matthew Christmas, Partner, DLA Piper, and Richard Williams, Partner, TDC.

Kicking off the debate, Barnwell said the debt markets have ‘reacted quickly’ to macro events and that he was seeing ‘a flight to safety and a flight to quality’ with funders focusing on preferred sectors.

“For good businesses, there is still a variety of debt options available. It’s important to properly understand your proposition in the eyes of debt providers, so you can speak the language that they need to hear to address the risks that third parties would see in your business.

“The types of funding that were available 12 months ago continue to be available now.

“There may be a slight tightening of terms in the levels of debt that is available, the way it is structured and the pricing attached to it, but in general terms, whilst there are lots going on, and the debt markets are reacting quickly, they are very much open.”

Richard Williams agreed pointing out that with the current volatility out there, businesses that are exposed to supply chains, availability of labour, and rising interest rates, there are ‘very few hiding places.’

“So, there are certain sectors that will be less exposed. And you’ll probably find quite a feeding frenzy around some of those businesses whereby private equity interests or general acquiring interest and debt providers will gravitate to those sectors and those businesses.

“I agree with Tom, that there is always capital available, but I think it’s for selective credits. Our job is to pick those scenarios and from our investor’s point, getting the right risk-adjusted returns. So, that’s appraising the risk and pricing it correctly.”

James Painter said: “From our perspective, given the sectors we focus on, we continue to see debt providers being open to conversations and are very supportive both on initial transactions that we do, as well as buy and build. So, we’re seeing funders also looking to back portfolio companies and platforms.”

With rising interest rates, he also advised firms to run a sensitivity analysis around the cost of interest.

He said: “The main point from us is that we’ve always been sensible on leverage given where interest rates have gone up over the last three to six months and so running some different scenarios on interest and sensitivity analysis is pretty key.”

Watch the webinar:

Matthew Christmas said more people were focusing on their existing portfolio.

“That’s a much easier proposition to take to an investment committee or credit committee if you already know and de-risk the business for a period of time rather than taking on a brand new challenge,” he noted.

“We are seeing again a lot of processes that were on mandates and didn’t necessarily get done last year in the corporate team. They may be flipped into a refinancing or recapitalisation. Possibly there you couldn’t meet the price expectations as everyone was still maybe applying a 2021 valuation to their business.”

He also added that credit funds were waiting to find the “right opportunities to deploy capital and get the right returns for their investors.”

Simon Dixon noted that from a bank’s perspective there was a continued focus on supporting existing clients with their plans.

“As a lender, we are looking to support our existing client base and take them forward,” he said.

“We’ve seen a lot of activity this year around buy and build acquisitions, refinancing of previous debt to put on a better structure to take the business forward. So, that’s been a feature of the year.”

He also pointed out that in the mid-market space there is a ‘desire to support people to continue growth out of COVID and warned there is ‘caution around leverage.’