Capital Thinking

During 2013 - 2015 our debt advisory team published six issues of Capital Thinking, a publication which looked at current debt and financing market trends from a technical perspective and which are still relevant today.

Issue 1: Bond financing (September 2013)

In 2013, bond financing was booming, underpinned by a contraction in traditional bank lending in the wake of the financial crisis and investors’ search for yield (and willingness to accept higher risks) in a low rate environment. The increasing popularity of bonds has had a dramatic impact on the high yield and leveraged space and on the investment grade market too. A significant concern for investors has been the erosion of lender protection as bonds often carry higher risk compared with loans through diluted covenants. The key issue is whether these changes are temporary or structural and, if the latter is true, how these trends will play out across the different asset classes.

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Issue 2: Europe’s bond markets (January 2014)

Europe’s bond markets filled the gap left by the contraction in bank lending in the wake of the global financial crisis. Bond financing saw an increase in importance and looks set to make further gains as a complementary and supplementary source of funding to bank lending for companies. In this issue we analyse the factors underpinning this trend and assess the viability of bond financing as an alternative source of funding for mid-market companies.

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Issue 3: The rise of unitranche (May 2014)

Unitranche combines a senior and a junior loan agreement into one facility. In Europe, until 2014, the primary demand for unitranche has come from private equity firms, which have used unitranche as a substitute for traditional bank-led acquisition facilities. In the US, however, unitranche financing has also been used by corporates for some time. Will European corporates follow the same trend?

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Issue 4: What exactly is asset-based lending (ABL)? (February 2015)

Asset-based lending is a form of secured lending where a loan is advanced against specific assets of the borrower. In practice, the main focus of asset-based lending is on current assets, primarily accounts receivable and inventory. However, asset-based lending often includes fixed assets, particularly plant and equipment and, to a lesser extent, real estate. These latter categories tend to be used in addition to, and in support of working capital facilities rather than on a stand-alone basis, as specialist lenders may be able to structure more favourable financing for fixed assets.

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Issue 5: Working capital performance – research report (June 2015)

In this edition we discuss the findings of our research into the recent working capital performance of over 4,000 UK headquartered companies with a view to understanding the role of size and sector in determining what good performance looks like.

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Issue 6: From small print to bottom line (in association with Herbert Smith Freehills (December 2015)

In conjunction with Herbert Smith Freehills, this edition of Capital Thinking explores six key themes in loan documentation and assesses how the mid-market borrower can take advantage of current market conditions, which offer borrowers enhanced commercial and operational flexibility.

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