Please click here to view the transcript.

The credit crunch continues to squeeze the supply of capital and combined with the economic downturn means that lenders continue to take a much more cautious stance, especially to companies that are underperforming.

Companies needing to refinance or obtain waivers and amendments to existing finance arrangements are facing an unpredictable response from their lenders, even when the relationship has historically been strong.

In particular they need to do some contingency planning and consider questions such as:

• What happens if refinancing can’t be obtained at existing levels?
• How much headroom is available to avoid a breach of banking covenants or need for additional liquidity in a downside case?
• How sensitive is your business to an increase in debt servicing costs?
• What do your banks think of the management information you currently provide?
• How robust is your business plan to downward sensitivities? Will your projections stand up to third party scrutiny?

Companies should expect a more rigorous review from their auditor to sign off accounts and act early if they need to refinance or renegotiate covenants.

In a short video Michael Berkowitch, Debt Advisory partner, discusses the fundamental change in the credit markets and what companies need to do.