Four ways to boost your chances of success in a tough refinancing market


After a decade of benign inflation and interest rates, lenders and borrowers alike are now grappling with the rapid increases in operational and financial costs that companies are facing. While the supply of funding in most debt markets remains, actual deployment of these funds has become more selective. The uncertainty and volatility seen in the last few years has pointed some lenders towards stable sectors and markets with predictable revenue streams. However, with a constantly evolving debt market and significant liquidity available, there are still many potential options for companies looking to raise or refinance facilities.

By Richard Siddall, Head of Debt & Capital Advisory, PwC UK

In 2008, liquidity all but dried up. But the credit market is very different today. While the established banks are still an important force, and far better capitalised than they were, there is now also a much more diverse set of options that includes challenger banks, asset-based lenders and private credit funds and institutions.

Private credit funds and other nonbank lenders have had abundant dry powder at their disposal. Until quite recently, they’ve also been able to take advantage of benign economic conditions and a low interest rate environment. This has allowed them to seize market share from banks, particularly in the leveraged finance market, and offer flexible finance to mid-market and SME businesses.

Barrage of disruption

The economic shocks of the past three years have turned credit conditions and underlying assumptions on their head nonetheless. We’ve had the microchip shortage, supply chain breakdown, the Suez blockage, the war in Ukraine, the energy crisis, intensifying competition for talent and now inflation at rates at their highest since the 1980s.

And as difficult as the challenges are now, there is further upheaval ahead as the move to net zero gathers pace and Generative AI spearheads the next wave of technological disruption. Strategies, operational capabilities and even whole business models will need to be rethought and reconfigured as a result.

With costs rising and trading more volatile, many businesses need fresh finance to weather the immediate storms. They also need to sustain investment in technological and ESG advancements and potentially acquisitions to keep pace with the transformations in their sectors.

Rising bar for refinancing

The net result of this uncertainty is that refinancing arrangements that would have been readily available over the last ten years are not always accessible through the traditional routes.

While the European high- yield bond market has shown some recovery in 2023, volumes are still below the long- term average. The make-up of these issuances is heavily skewed towards seasoned issuers, and the vast majority in EUR with very low GBP volumes. Many companies are still questioning where inflation and base rates will end up, and therefore there is still some reluctance to lock in fixed rate funding at present.

The European leveraged loan market remains active, but since the middle of 2022, at a slower pace. Slower in fact than the first COVID summer of 2020. Many larger and mid-size corporates are being forced to look elsewhere for finance.

If we look across the mid and SME markets, the clear message is that businesses can no longer take the rollover of maturing finance for granted. And even if they can secure it, the pricing and terms will have moved significantly.

In a final twist, the ceiling on how much businesses can borrow is likely to be lower due to the increased cost of debt and more prudent appetite from lenders. For example, a company that could previously achieve a five-times levered arrangement may now be looking at- three-four times.

The better news is that private credit funds still have plenty of dry powder that they’re motivated to put to work. We estimate this to be more than €50 billion across Europe at the latest count. We’ve seen them offering finance to some of the larger corporates as an alternative to the high- yield bond and leveraged loan markets. By clubbing together, private credit funds can provide significant levels of finance to large clients, while sticking within their individual credit ceilings.

But there are preferences for some sectors rather than others, creating a more binary market. Lenders favour sectors with dependable long-term revenue streams such as healthcare and technology, media and telecommunications. By contrast, sectors where revenues are under pressure and where uncertainties about the future are most acute, including consumer-facing businesses, are having to work much harder to win over lenders.

Right lender, right plan, right structure

So what’s the way forward? The bar for refinancing is rising. But we are still managing to help many businesses secure the funds they need by making the most of today’s diverse financing options. Four priorities stand out:

Act now and stay ahead

With access to credit lines being less certain and the level of due diligence being increased, you need to allow time for refinancing. Businesses that are slow or late to act may reduce the options available to them.

How much time is enough? As arrangements come up for maturity, refinancing should be agreed well before the next set of year-end accounts are finalised. This avoids the risk that uncertainty over future funding could make it difficult to sign-off your accounts but means preparations for refinancing may need to begin at least 18 months before current agreements mature.

Consider all the options available

Understanding the funding options that are available and most appropriate for your needs is key. Consider these options, whether you get a greater quantum from a different lender or can structure your debt in a different way.

If revenues and profits are currently constrained, you might, for example, target asset-based lenders who will base loan approval on the value of your debtors, plant, inventory and other assets rather than solely on your cash flows.

Make sure your business plans are credible

Lenders want to know how you’re going to deal with any further shocks and uncertainty ahead by identifying the worst-case scenarios, your sensitivity to them and how you can mitigate them. This includes detailed cash flow forecasting, contingency planning and demonstrating your ability to respond with agility and speed. The numbers and scenarios also need to be realistic and justifiable.

Prepare your story

Clear articulation of your plans, funding requirements and trading performance are all hugely important to get lenders buy-in. It’s become more apparent through COVID that it’s not just a solid business plan that lenders need to back, it’s the strength of the management team and the ability to adjust and adapt to situations. Good preparation ahead of lender meetings may be a clinching factor in securing debt financing.

With the right plan, the right structure and the right lender in place, it is more likely that you will move to the front of the queue for credit.

Contact us

Jeremy Webb

Jeremy Webb

Partner, PwC United Kingdom

Tel: +44 (0)7740 639976

Richard Siddall

Richard Siddall

Partner, Head of Debt & Capital Advisory, PwC United Kingdom

Tel: +44 (0)7595 610101

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