Upon the acceleration of COVID-19, from March 2020 onwards, with national and global lockdowns being announced, there was a shock across all global markets including debt.
Event-driven activity from M&A and good book refinancings was very limited, if present at all, for a period of time as most borrowers scrambled for additional liquidity from their lenders, sponsors and other stakeholders, including customers and supply-chains.
The focus of most companies turned towards survival and self-preservation. We witnessed a range of government-backed support programmes announced across the world.
In the UK, we saw the introduction of the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Coronavirus Business Interruption Loan Scheme (CBILS), which were open to a range of businesses, in addition to the COVID-19 Corporate Finance Facility (CCFF) for investment grade issuers.
In this difficult environment, we helped our clients access liquidity and seek amendments on existing facilities with lenders.
Towards the end of 2020, more confidence emerged across specific sectors and many of our clients relaunched processes that had been postponed earlier in the year.
Yet, this was very sector-specific and we saw the debt markets begin to diverge; the strongest borrowers in sectors least impacted were able to access very competitive debt financing – almost as if COVID-19 hadn’t happened for some - while those borrowers still distressed found it much more difficult to have conversations beyond their incumbent lenders.
A relevant trend we saw was that most of the CLBILS and CBILS programmes were offered through the main clearing banks in the UK, and to a lesser extent, some of the challenger banks and more specialist lenders.
The large number of non-bank lenders encountered, on the whole, a frustrating period as they sat on significant amounts of undeployed capital. This helped fuel the surge in deal flow towards the end of the year and has continued in earnest into 2021.
There may always be ‘winners’ and ‘losers’ within sectors, but the gap between such companies is pronounced as we continue into 2021. This is reflected in the availability of debt finance. There is a dearth of high-credit quality borrowers, which allows such borrowers and issuers to access a wide suite of options at very competitive terms.
For those businesses still emerging from the initial shock and lasting impact of COVID-19, the positive news is that there is still an excess of credit supply in the market across a range of bank and non-bank lenders though lenders are more discerning than ever.
Throughout 2020, we worked on a number of CLBIS and CBILS debt raising transactions. However, we also worked on more conventional debt financing situations, both pre and post the initial lockdown periods.
A particularly innovative transaction was a £50 million debt raise utilising an ABL + unitranche structure. This was on behalf of a corporate within the business support services sector. The corporate was a market-leading, independently-owned soft facilities management solutions provider delivering cleaning, security, compliance and catering services to blue-chip corporates and the public sector.
We drove a competitive process leveraging our extensive sector knowledge, experience and network of funders across the capital spectrum. During the transaction, our team was also on hand to advise on an off-market acquisition and refinance of the existing banking facilities. Our involvement ensured the business capitalised on a strategic growth opportunity and delivered an investment that met the shareholders’ key objectives.
The ABL + unitranche structure is gaining more popularity across the market place, particularly with companies who have both good asset bases and good margins where EBITDA converts well to cash flow. The intercreditor principles between the ABL provider (typically a bank) and the unitranche provider (typically a fund) are imperative for concluding a successful transaction. Each type of these deals are different as we usually see the ABL funder able to advance a higher proportion of the overall financing package compared to the more market-standard super senior RCF + unitranche structures. This can work very favourably for borrowers from a cost of capital perspective.
During this period of acute stress, we helped a number of our clients raise additional liquidity from CLBILS and CBILS across a range of sectors, including pubs, recruitment, leisure, travel, automotive and steel.
However, a large number of our clients were not able to access the CLBILS and CBILS programmes due to eligibility or credit profile issues and we worked with these clients to explore other avenues of finance.
We work with borrowers of all sizes and quality to access the right type of debt financing, ranging from bilateral loans with high-street banks, private equity-backed unitranche structures, asset-based lending across different asset classes and more esoteric special situations lending. This can be for refinancing, working capital, acquisition finance or dividend recapitalisations, amongst other uses.
Carefully constructing a detailed credit story, explaining the unwind of the balance sheet when government support is withdrawn, and stress testing forecasts for unforeseen scenarios are the key themes so far this year.
2021 has been extremely busy already for debt financing and refinancing and looks set to continue as more confidence and clarity returns to more sectors across the economy. We're confident that we can assist you with your financing requirements.
Find out more about how our debt advisory team can support you.
