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How banks can support businesses during a crisis

Joe Rudkin Treasury, Market Insight

Since March, the United Kingdom alongside the rest of the world has been dealing with the impact of the COVID-19 outbreak. All businesses, industries and functions, including those in treasury, have been dealing with challenges not experienced for over a decade.

With expert insight from treasury professionals we are running a series of interviews in which we’ll discuss the challenges being faced, the short and long term implications, the lessons learnt and advice for future similar situations.

A huge thank you to the following for your contribution:

  • Paul Leacy, Interim Group Treasurer at Badoo
  • Martin Walker, Treasury Consultant with experience in leading treasury functions across a range of sectors 
  • Catherine Porter, Chair of the Membership Advisory Panel at the ACT
  • Nick Axton, Group Treasurer at Travelport
 

In interview three of the series our panelists discuss how banks can support businesses during a crisis. We asked our panelists:

 

In your opinion, what support from the banks and lenders can be expected over the short and longer term for large and smaller corporates?  How are Treasurers best to approach expected waivers or issues with existing agreements, refinancing or restructuring of debt and raising new finance in the post-pandemic economy?

 

Quick takeaways:

  • Quick decision making on providing loans
  • Banks should look at the long term viability of a business
  • Banks should look to be more accommodating
  • Treasurers should maintain a constant and regular open dialogue with their banks and lenders.

 

Paul Leacy: For smaller corporates, you would hope for quick (and generally positive) decision making on providing facilities (particularly in light of government support for loans). For larger corporates, assuming the business can illustrate a robust business model and strong future once the pandemic has passed, banks will continue to support them in similar ways prior to the outbreak. Being as open as you can with banks and demonstrating a strong understanding of the business and how it will cope with the various possible outcomes is as important as ever. One of the worst things a treasurer can do is be overly optimistic in conversations with banks and be forced to return to them for a subsequent request for a waiver or additional funding.

Martin Walker: In times like these the relationship which corporates have with their banks will be critical. For smaller corporates they are probably relying on a single bank and should expect support. The banks should understand and look through any short term impacts and look to the long term viability of the company. What banks will expect in return is that the business has a good handle on likely forecasts and has reacted swiftly and decisively to the challenges presented by the current pandemic.

Waivers may well be needed on existing agreements, covenants will not have been designed to withstand a significant downside to the business, and in fact would be designed to break in these circumstances. I would recommend an early approach to the banks on the back of a solid analysis. As regards to refinancing or a restructuring of debt in a post-pandemic economy, I would expect conditions and pricing to be volatile until the outlook becomes clearer.  Again, I would recommend a solid analysis of the financial forecast and a timely approach to banks to achieve the best outcome.

Overall I would expect banks to be supportive and to play a major role both in the current crisis situation and in dealing with the longer term effects. However, the basic principles of risk and return remain, so businesses will need viable business models to survive.

Catherine Porter: Short term, I’d expect banks to be accommodating. Crisis not of corporates’ making and the solutions for the whole economy have to be collaborative. Keep bank contacts up to date and tell them how your business is doing. In the medium term and with existing financing agreements it depends on how banks respond to continued covenant and regular financials reporting/missed covenants and if or how recent audited accounts are presented. For the longer term and when seeking new finance, unless the finance is expressly underwritten or is part of a government scheme I’d expect banks or potential debt investors to go back to basics and want to understand how the future cash flows of the business will support the borrowing sought.

 

Nick Axton: Support will depend on your strength and depth of your relationships and your credit / distressed position. Banks and lenders have been very supportive during this crisis to date as many see this as a short term blip. Treasurers should maintain a constant and regular open dialogue with their banks and lenders. They should work with the support / guidance of their legal counsel to understand what options are available to seek waivers / deferrals in their existing agreements. Similarly for refinancing / new debt raises, seek guidance from your advisors on appropriate timing and think about the consequences of delays. In the short term, expect a squeeze on credit lines for dealing / overdrafts. Committed facilities should be available. Expect banks to socialise the possible close out / reset of outstanding positions that were in their favour.  In the longer term, credit may be more expensive (as a result of subdued market conditions and ratings changes), credit lines and supply may decrease and there will be more scrutiny on speed of recovery to a new base case.

 

For advice or more information about the latest developments within the treasury world, visit the ACT website www.treasurers.org. They have a vast array of technical supports. Alternatively, feel free to contact us at Brewer Morris as we may be able to put you in touch with the relevant people.