Current debt landscape

The Current Debt Landscape

Whilst there are clear challenges ahead, a major positive is that the debt landscape is different than in 2008. There is an environment that encourages continued lending (e.g. record low interest rates, government schemes to support lenders) and there are several alternative options available to borrowers that did not exist before including challenger banks, alternative asset-based lenders, debt funds with committed capital, family offices and specialist finance providers.

As a Deal Advisory team, we are speaking regularly with our bank and debt funder contacts to understand the situation and challenges they face, and how they are trying to support businesses. The message has actually been fairly consistent across the board with some of the key themes being as per the follows. However, there are subtle differences between each lender, especially when it comes to interpretation of some of the rules of the Coronavirus Business Interruption Loan Scheme (CBILs).

• “Portfolio-first” policy – Portfolio teams are examining every business in their portfolios to gauge the extent of stress and sector trends and focussing on ensuring their existing customers are protected and supported before considering new opportunities. This currently includes being supportive in granting capital repayment holidays or overdraft extensions and utilising the CBILs where appropriate.
• Sensitivity analysis – banks are focusing on ensuring their customers sensitise their forecasts and provide short term cash flow models including potential areas for cost cutting if worst case scenarios materialise.
• Volume of requests – Banks have had unprecedented numbers of drawdown / funding requests from existing customers as businesses look to ensure their security in an uncertain period. The response of many of the banks is exploring how they can streamline their credit process.
• Alternative options – There are a significant number of alternative lending options in the market, including family offices private debt funds, alternative asset-based lenders etc. A number of have flagged that the returns required are likely to be higher for new requests given the level of risk in the current market – but importantly there are options available to UK businesses.
• Preference for known entities and simpler credits – Positively, and unlike the financial crisis of 2008, lenders appear to still be open for business. The short-term focus, however, is on businesses who are mid-way through a funding process, who are already known to a lender, or who have relatively simple, well-prepared funding requests.

GOVERNMENT SCHEMES

The government has introduced the below schemes to help business funding: 

• The first, the Covid Corporate Financing Facility, is intended to support larger businesses with the Bank of England stating it will buy Commercial Paper issued by investment grade companies at the prices that existed on 1 March 2020, i.e. before the crisis.
• The second, the Business Interruption Loan scheme, is intended to provide banks and funds with an 80% government guarantee on loans up to £5m to businesses they otherwise would not have lent to because of a lack of security. Personal guarantees and the pre-requisite to apply for commercial financing first, have now been removed and further detail on these changes can be found here.

• As well as the improvements to the original scheme, a new Coronavirus Large Business Interruption Loan Scheme (CLBILS) will now be offered. The reviewed scheme will give government guaranteed loans of 80% up to £25m to businesses with revenues between £45m and £500m. Full details are expected to be released w/c 20th April.

A comparison between these schemes is detailed below.

Get in touch

If you would like to know more about your loan scheme options, please get in touch with us here and Josh, Paul or a member of the team will be in touch.