Our corporate banking team hosted an informative panel discussion where guest speakers Rory Cameron-Mowat - Rothschild, Matt Osborne - HSBC, Professor Graeme Roy - Fraser of Allander Institute and James Fagan - KMPG considered what 2020 holds for corporate debt finance.

2019 Trends

• Political and economic uncertainty resulted in low deal volumes in the UK in 2019
• Banks tightened lending criteria and were more transparent about their appetite on hold levels and their requirements on return on capital

"In 2019 the sheer number of macro factors, especially around Brexit, really drove a “risk off” mentality. So in 2019 there were lower deal volumes."  Rory Cameron-Mowat, Rothschild

• Short term, event driven funding continued and was often refinanced in the capital markets
• Focus in the UK has been on short term issues with little consideration given to longer term challenges such as climate change, increasing technology and the ageing population

"The numbers when they officially come out next week will probably show that 2019 was the weakest year for the UK economy since the financial crisis." Professor Graeme Roy, Fraser of Allander Institute

2020 Trends

• Political stability post the UK general election should boost business confidence
• Businesses which are more reliant on European trade will continue to suffer from a lack of certainty 
• Likely to see more insolvency - typically driven by failure to adapt to changing circumstances. Relaxed lending terms and more complex credit structures mean problems tend to surface late, offering little or no opportunity for restructuring

“The longer the runway you have, the more options you have.” James Fagan, KPMG 

• Some sectors are less attractive  to lenders such as high street retail, casual dining, outsourcing and construction
• Plenty of bank debt available but at a price
  • Some banks are transferring debt that does not meet their return hurdles meaning corporates find themselves with funders they did not select
  • Corporates should not assume that there will be appetite for lenders to increase their holds or hold their pricing

”It’s all about the returns. The  process to get the business case for the balance sheet approved is now often much more difficult than the credit process itself.” Matt Osborne, HSBC 

• Corporates are keen to take acquisition opportunities
  • Corporates need be able to move very quickly to compete with private equity for assets
  • Requires a shift in mentality for many corporates
  • Corporates need an open dialogue with their funders on appetite and pricing
  • Corporates need to test board appetite for risk and delegate authority to a small group who can execute quickly
• Planning for a refinancing needs to start early - around 30 months before facilities expire
  • Choose your bank group based on the best fit for your ancillary product requirements 
  • Place ancillary facilities, private banking and advisory services from banks where you’ll get the best return in terms of debt commitments
  • Expect a range of pricing from banks, driven by their own return on capital calculation
  • Be flexible in terms of the duration of committed debt facilities - there may be significant pricing benefits to accepting shorter term facilities
  • Consider a proof of concept for longer term funding in the capital markets through a private placement or bond issue
• LIBOR will cease to be quoted in 2021
  • Growing pressure on loan market participants to transition 
  • In the UK, SONIA is the most widely proposed replacement reference rate 
  • No market position yet on how to take account of future credit risk when using a backward looking rate