![]() ![]() "These loans require much extra work to assess constantly moving cash flows and in this kind of environment," he said.Ĭompanies in need of cash are also likely to tap private equity firms, which are also becoming more discerning about the companies they support.Īny large corporate failures are likely to have a "contamination effect", said Tim Metzgen, an A&M managing director. " is always cyclical, some banks are in and suddenly they are out," Anand said. Ravi Anand, managing director of specialist lender ThinCats, said firms without large asset bases were struggling to access all but the most vanilla, loan-to-value based finance from mainstream banks, with loans based on core profit much harder to come by. He pointed to construction and retail sectors where he felt strains were most acute. Some lenders have tightened credit terms and even offloaded some smaller business customers entirely as they review the profitability of those relationships, said Naresh Aggarwal, policy director of the Association of Corporate Treasurers. Katie Murray, CFO at NatWest Group (NWG.L) told a conference last month that her bank had concerns about how Basel III capital rules might impact small business lending. Tougher capital rules for banks that come in from 2025 are expected to constrain appetite to support companies in need of fresh funding, industry experts said. restructuring team had also seen a significant influx - a leading indicator for Europe.Įva Shang, co-founder and CEO of Legalist, a U.S.-based hedge fund that offers debtor-in-possession (DIP) financing to companies in Chapter 11 bankruptcy, told Reuters her firm had received more than 300 applications for funding since January, mostly from Main Street businesses in distress due to rising interest rates and the end of COVID stimulus. "Our insolvency colleagues are already busy in the smaller end of the market, and that's where it always starts," Kirkbright said, adding that A&M's U.S. 13.īut the refinancing task cannot be put off indefinitely. Trade body UK Finance described demand to borrow among smaller firms as "muted" in its Q2 Business Finance Review on Sept. This resilience is partly due to liquidity pumped into the economy during the pandemic but banks' year-end asset quality reviews - which measure a loan's underlying strength - will be key, Kirkbright said.īank of England data showed gross lending in the first half of 2023 was 12% lower than the previous six-month period. One senior banker told Reuters their bank has plans to redeploy hundreds of staff to support distressed business customers if high funding costs and flagging consumer demand push more companies to the brink.īut so far business borrowers have shown few material signs of stress, two senior banking sources told Reuters. One major bank is referring 100 small businesses a month to its restructuring team, up tenfold from 18 months ago, Paul Kirkbright, a managing director in A&M's restructuring practice, said. The Bank of England has urged lenders not to underestimate the risk of corporate loan defaults and to avoid relying on models that measure risk across entire sectors rather than individual borrowers, after England and Wales had the highest number of company insolvencies since 2009 in the second quarter. "Banks and private equity shops have waited to see if the tide turned but higher rates don't allow hiding anymore." DEFAULT SCENARIO "Central banks are taking a breather but aren't ready to say rate hikes are over," Nicola Marinelli, assistant professor of finance at Regent's University, told Reuters. Begbies Traynor's quarterly Red Flag Report on corporate distress, covering the April-June period, found that 438,702 businesses across the UK were in "significant" distress, up 8.5% on a year earlier.īritish discount retailer Wilko fell into administration this summer, leading to thousands of job cuts.įrance's sixth largest retailer Casino (CASP.PA) has just finalised a debt restructuring to avert bankruptcy. ![]()
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