CBILS/CLBILS - what's your plan C?
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Hopefully you and your family are well insulated from the virus.
Across the market lenders are, in the main, being flexible. Thankfully, no repeat of the behaviours adopted during the GFC. Many of our clients have submitted, and had approved, interest and amortisation waivers for 1 if not 2 quarters and submitted a CBILS/CLBILS application to their primary bank. Covenants are being re-negotiated, facilities extended, and, in some cases, pricing revised upwards.
During this unusual period, we are helping a range of clients, advisers and lenders across several sectors. Here is how we are supporting them;
1) Providing advice to borrowers on what other lenders are providing by way of revised covenants. As interest and amortisation waivers are being agreed for the coming months and quarters, many loans are being re-profiled. You may end up with better short term cashflow covenants but tied in for longer at a higher interest cost. Are the terms offered suitable and are the terms you are being offered normal compared to other similar situations elsewhere?
2) Helping businesses through the CLBILS and CBILS loan process with their current lenders. That can be creating models and cashflows or helping collate submission packs. We aren't seeing many “new to bank” applications being approved so the incumbent bank (be that lender or just bank account provider) is by far your best option. Thereafter you should 1) revise your application and re-submit it to your lender at a lower loan amount 2) review your best alternative product options (term debt v invoice discounting v asset finance v bridging finance) and then assess the capital type (debt v mezzanine v equity). Thereafter it's advisable that you approach lenders that are not on the Government schemes as an alternative.
3) Providing advice on which types of finance and structures are currently attainable. After a review of 100+ capital providers, there were some clear movements with LTV/LTC's down on average 10% and pricing up anything from a few basis points to 30% of the previous rate/margin. EBITDA multipliers had also moved downwards. As expected, opportunistic and private equity led funds are more actively reaching out looking for opportunities. The middle risk/price section of the market is currently the most fertile place to be when seeking new debt finance. By submitting new deals to capital providers, we are getting a better feel for what’s PR and what’s deliverable.
4) Raising finance to improve working capital. Most businesses have benefited from the various government support packages being provided so monthly cash burn has eased. There will inevitably be an element of unavoidable cost running through businesses at this time as well as the costs associated with ramping up to full operational capacity once the lockdown is over. The options we are seeing work well here are:
semi-secured small loans delivered under a Debenture or PG only
refinancing of whole businesses out of prime debt in to more flexible & opportunistic facilities (higher EBITDA multiplier so creating more cash/firepower)
mezzanine finance for both corporates groups/entities & property assets at an SPV level
bridging finance secured by existing assets.
5) Raising finance to help businesses capitalise on the market conditions. Some clients have been growing their businesses using a M&A based strategies. We have clients actively acquiring house builders & construction related businesses. If you are acquisitive then the obvious option is an equity partner, the alternative could feature more senior debt leverage and possibly some preference equity (pref). Pref looks more like debt despite being higher up the capital structure and helps maintain more control for existing management.
6) Supporting lenders to recover their capital. During the GFC we worked with lenders to help them, and therefore their borrowers, repay loans quickly to avoid the loans being called up and security being enforced. Owing to our market perspective (debt/equity/mezz & active in both property and trading businesses) we are seeing the same service being of use to lenders this time round.
Although there will undoubtedly be a period of uncertainty, the main issue at the moment is the frustration, and delays, associated with accessing the CLBILS / CBILS retail bank loans. Only a small proportion of lenders <10% have fully ceased lending so once the retail banks have worked through the applications then the alternative capital providers will become more active. CBILS/CLBILS lenders who can approve new to bank facilities will gain significant market share, there are early signs of who these lenders will be, and their actions will be confirmed by their results in May/June/July/August.
Having a plan B and plan C is crucial as the Government schemes are helpful but they may not be able to support everyone. Once you have applied to your existing bank then we can help suggest an alternative so you have options. Once we get to September/October/November then the decisions made in April/May will be felt.
Please click here to view of summary of different sectors and how we can assist you.
Or you can learn more about Conduit Finance by clicking here www.ConduitFinance.com
We continue to take stand side by side with our clients to help them navigate this unusual time. If we can help you then just let me know how.
Regards
Jamie
