A wave of corporate refinancing could make businesses stronger and more sustainable, according to experts at PricewaterhouseCoopers in the Midlands.
In the last six weeks, PwC says it has seen a sharp upturn in companies discussing refinancing and the firm is expecting the volume of companies seeking to reassess their level of debt finance to increase further.
Rob Hunt, partner in the corporate restructuring team, said: “There is a significant proportion of businesses in the region that have extended borrowing from private equity backers and financial institutions in the good times and now, as the economy slows, are finding it increasingly difficult to service such debt.
“Businesses may need to scale back growth and renegotiate debt finance to a level that is more realistic, based on order books. If carried out promptly, such measures could not only stave off distress but create a stronger platform from which to invest when conditions improve.
"While there is still uncertainty about the economy, we should view such changes in business behaviour as a correction, which if carried out with the full support of stakeholders, could leave the Midlands economy better.”
Two options are asset finance and invoice discounting.
Andy Skinner, a specialist in the debt advisory practice at PwC in the Midlands, said: “In the past few years, it has become commonplace for banks to agree to finance based on projected earnings and in many cases, such investments are worthwhile.
“The current cautiousness in banking means that where high levels of debt already exist, companies need to pull out all the stops to reassure lenders that their debt can be serviced.
“While banks are continuing to lend to well-managed businesses, the cautiousness in the lending market could prove a blessing in disguise as companies are forced to rethink their approach to finance.”