Signs are beginning to emerge that the debt market is becoming more competitive and lending is beginning to trickle through to businesses in the region, according to PricewaterhouseCoopers in the Midlands
The firm’s latest Debt Markets Update report reveals that the cost of lending is starting to level off as the effects of quantitative easing and significant Government subsidies free up funds within some high street banks.
According to Matt Waddell, head of corporate finance at PwC in the Midlands, this is starting to restore stability to the debt market.
He said: “While the margin over LIBOR of credit is still exceptionally high, there are signs that it is beginning to level off and this is good news for Midlands businesses because it means they can plan ahead with at least some degree of certainty about what they will be able to borrow and how much it will cost them.
“The availability of finance is improving a little and the debt market is becoming more competitive.
‘‘But companies need to be aware that the cost of borrowing is unlikely to fall by much and in many cases, they will need to make use of other debt options available to them, in order to fulfil their lending requirements.”
PwC’s report on the debt market reveals that take-up of asset-based lending dipped slightly in the third quarter of 2009.
That indicates that its peak may have passed after its popularity during the early stages of the recession.
For larger, listed companies – in particular those that are asset-backed or have a strong cash flow – bonds have proved a popular method of financing debt, PwC said.
By contrast, leveraged finance for deals continues to be hard to come by and this is expected to continue in the fourth quarter, with any pick-up lagging behind the rest of the debt market.
The lack of leveraged finance has led to more deals being financed on a “club” basis, with several banks agreeing to fund part of the debt.
Matt Waddell, said: “As we come out of recession banks will be required to finance corporate growth and it is important for companies to be realistic about the money they need so they can approach lenders on that basis.
“While debt finance remains hard to come by, they should also consider their debt options and where possible, shop around to secure the most cost-efficient source of finance.”