Breaking Through the Refinancing Wall: Planning for growth
WITH access to finance tight and many companies struggling to manage their debt, what options do organisations have to plan for recovery and growth? TheBusinessDesk.com, in association with business advisors and accountants Grant Thornton and asset based lender Crédit Agricole Commercial Finance, reports.
THERE’S little argument that 2010 has been a year of immense economic change.
A new coalition government, and Budget and Comprehensive Spending Review announcements have caused uncertainty as much as clarity in the business sector, and many commentators predict economic recovery from the recession will be a slow and painful process with the “green shoots of recovery” being some way off.
Couple a negative economic backdrop – including government austerity measures – with many companies facing what is being described as the ‘refinancing wall’, and the future for many organisations remains unclear.
Yorkshire businesses with debt facilities are facing a ‘refinancing wall’ and are being advised to immediately examine the make-up of their funding requirements in order to plan for growth.
The ‘refinancing wall’ refers to a Europe wide spike in refinancings looming in 2011 and 2012 and coincides with tightening of regulations on capital and liquidity in the banking environment, exacerbated by the economic climate felt both in the UK and across the globe.
According to Ian Marwood (pictured left), corporate finance partner at Grant Thornton in Leeds, forward thinking companies are re-appraising their strategies and business models as the pace of recovery takes hold at different speeds across different sectors.
Mr Marwood said: “A significant proportion of companies are intending to fund growth and expansion from internal cash generation, rather than rely on bank funding.
“Companies are looking at their asset base and as asset values improve we expect an increasing move towards disposal of non core assets.
“This has been held back so far by poor merger and acquisition conditions but there is now evidence that well funded buyers, especially from overseas are in the market for quality assets. Valuation multiples are modest but many vendors find them acceptable, with no expectation that multiples will increase significantly in the short term.
“Capital structures are being reassessed, with a recognition that equity has an important role to play in the growth strategies being adopted.”
Ian Flaxman (pictured right), strategic director at Crédit Agricole Commercial Finance, calls for borrowers to start negotiating with their lenders as soon as possible.
“In the current environment, I would also strongly recommend the involvement of an experienced advisor with knowledge of the market and experience of structuring funding packages to maximise available debt against balance sheet assets,” he says.
“In addition to technical knowledge, a good advisor will also be more able to determine a short-list of alternative funders should it not be possible to re-negotiate satisfactory terms with the incumbent lender.”
So, who could be the winners from the present financial conditions?
Mr Marwood believes private equity backed enterprises should be well placed to attract further investment as private equity funds struggle to find quality new assets to invest in.
“However our experience here is patchy,” he warns. “Certain houses are being highly supportive with new capital whilst others expect businesses to find new funding lines for growth.
“On the positive side, many private equity houses are taking a more flexible approach to the size and purpose of new investment opportunities, and should be seen as important strategic partners for many businesses.
“Capital markets, particularly AIM, do show signs of life, but are best suited for businesses seeking growth capital rather than simply refinancing.
“Debt for equity swaps are really seen as measures of last resort, with banks reluctant to become equity providers unless they really have to.”
Mr Flaxman claims asset based lenders will have a “key part” to play in supporting business through re-financing.
“Where more traditional overdraft and loan facilities tend to take little account of the value of assets such as debtors, inventory or plant and machinery, a specifically tailored facility against such assets is often a better alternative,” he concludes.
“As we start to see signs of gradual economic recovery, businesses with access to liquidity are generally those that are best placed to take advantage of the climate either through being able to fund sales growth or make acquisitions of financially weaker competitors.”
Another option for companies looking for finance is investigating public sector-backed finance schemes, including the £1.4bn Regional Growth Fund £90m Finance Yorkshire project.
