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9 May 2024
Insight
Are you experiencing changing credit behaviours from your lenders and/ or debt investors in the way that they transact with you?
- The data illustrates the resilience of the debt markets with the vast majority of respondents not experiencing any change in the behaviour of their financial counterparties.
- However, some respondents commented that they are aware of banks being more selective in their lending decisions with bank approaches varying depending on the sector and the particular business concerned. A number of respondents commented that this was not driven by bank lending capacity but more a cyclical realignment by banks (with certain sectors no longer considered as steadfast or profitable to lend to).
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"Banks are being more selective about who they lend to. This is a combination of sectoral issues but it's also business specific." "Credit spreads are a green flag for corporates to raise debt if they want to." "Banks rein in their business when things get difficult." "There are definitely sectoral issues at play." |
What do you consider to be the major impediments to raising debt in the year ahead (if any)?
- The persistent challenge of higher debt costs continues to weigh on corporates, although not to the same extent as last year. Whilst still a significant impediment to raising debt, there are signs that corporates are acclimatising to the current interest rate environment.
- Macro-events continue to exert an influence on debt raising, with respondents more concerned than in 2023 (though worth noting that, in 1.2 above, this was less of an impact on debt strategy than last year). The uncertainty caused by factors such as inflationary pressures, changing interest rate expectations and geopolitical tensions continue to influence decision making within corporates. Particularly prevalent this year are political concerns given the number of elections that are taking place globally in 2024, and although respondents are clear that this is just one of many factors influencing their decision making, there is an expectation that we will see increased debt raising before the US elections in the Autumn.
- The increase in the retrenchment of debt providers echoes the themes discussed above and highlights the need for corporates to maintain access to multiple sources of liquidity to accommodate changing investor policies.
- The increasing impact of tax and regulatory considerations on debt raising has emerged as a surprising development. Some respondents attributed this development to the impending implementation of Basel IV, with some banks, particularly in some geographies, raising this on recent financings as a reason for being unable to participate at targeted pricing levels. However, we have not yet seen any evidence that this is leading to a wider re-pricing of debt.
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Banks are "moving very quickly if they are not hitting their return models and need to move out of relationships." "With more than 40 countries, accounting for over 40% of the world's population, will hold national elections, making it the largest year for global democracy." "Boards will be happy that you've refinanced before [the spate of political elections being held this year]." |
What are you doing in response to these impediments?
- The prevailing theme that emerged from respondents was the importance of taking a proactive stance towards accessing debt markets in anticipation of capitalising on optimal borrowing opportunities when they arise. Corporates are increasingly mindful of the impact that geopolitical events may have on their ability to meet their financing requirements and so are taking whatever steps they can to be ready for such events. As discussed in Part 1, aside from conserving cash and/or reducing debt, many corporates are taking steps to be more nimble in their approach to debt raising. This may range from ensuring that debt can be issued promptly should a suitable window appear, maintaining access to a broad range of debt markets and debt providers or even re-examining the composition of their debt capital structure. We have heard respondents re-assessing the balance of fixed rate versus floating rate debt as well as the currency mix of their debt. In addition, some respondents noted that they had issued debt more regularly and with shorter maturities to manage their maturity profiles and take advantage of windows of cheaper financing.
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"We have open relationships with other debt providers to ensure, if required, we have open access [to debt] as required." "Cash is king again; IRs are higher, businesses are going earlier to refinance to ensure that they have enough liquidity." |
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