The FDs’ FD: Keeping the money coming

Four weeks ago I mentioned that optimism is returning, with FDs believing we
will start to see a recovery during 2010, although they expect credit conditions
to remain tough well into the recovery.

The next three years will be challenging for any company looking to refinance
existing borrowings or raise new credit.

While the issues faced by the banks are still significant, and will continue
to be so for some time, the number of loans due for refinancing is estimated to
increase over the next few years. At the same time, the focus of banks on the
lending covenants in place with companies, such as loan-to-valuation ratios and
interest cover, has never been greater. This can only add up to a headache for
FDs and their companies.

So where is the money going to come from to allow companies to survive and
begin to grow again?

Well, as we have seen recently, a number of businesses have turned to
shareholders to address balance sheet shortfalls through right issues.

However, this may be met with increasing shareholder reluctance – especially
in certain sectors where investors may be suffering from fatigue.

And what if you are an FD of a private company who does not have the good
fortune of being able to turn to the public equity markets for cash?

The reality is we are going to have to continue to rely on the credit markets
and, for many companies, that means the banks, where the cost of borrowing is
likely to remain high, despite the prospect of extremely low base rates for

So what can you do to ensure that you can obtain access to much needed
finance at as low a cost as possible?

I truly believe businesses that are proactive in discussions with their
lenders are much more likely to have success in influencing the final outcome of
their negotiation or refinancing and may obtain more favourable terms than might
otherwise have been available.

If you can present thoroughly tested solutions to your lenders, effectively
pre-empting many of the lenders’ concerns and expediting the processes, this
should hopefully lead to new or extended lending at a reasonable cost.

The banks have been the source for most corporate capital in the past and are
likely to continue to be the primary source of financing for many in the future.

FDs need to work hard to prove that their business is a safe bet for their

Margaret Ewing is a partner and vice chairman at Deloitte, and former CFO
at BAA

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