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Debt finance series: The future of debt finance

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Debt finance series: The future of debt finance

Managing Director, Alan Booth concludes his three part debt series by highlighting how the use of different debt structures by private equity firms and their underlying companies could provide an insight into how 2021's debt finance market could unfold. 

Private equity firms have largely been closed off from government support in the UK context, and are in many cases heavily exposed to sectors like retail and hospitality that have been severely impacted by the pandemic. We are seeing a sizeable increase in the number of restructurings and defaults and in our London team we significantly bolstered our restructuring expertise at the start of the year to help with that. 

We are very focused on helping private equity and their underlying portfolios to come out the other side of the current economic challenges. Within that market, we are seeing a number of fundamentally strong portfolio businesses going through restructuring and workout scenarios, and we have been involved to some extent with a number of restructurings that were private equity supported, or working their way through refinancing. 

Come Q4, I think we are going to see a crunch, with our colleagues in the legal market and the distressed advisory market starting to plan for a wave of restructurings going into 2021 and 2022.

An omen for 2021?

Looking at equity finance, it is likely that new share issuance will continue and might be ideal for corporates that have robust balance sheets. On the debt finance side, debt is relatively cheap at the moment so that’s certainly going to continue at pace, with debt issuance set to increase significantly in 2021, though that largely depends on how long covid-19 is going to be with us.

There’s going to be wider industries that just will not come out well post-covid because of people's behavioural changes, particularly relating to work-life balance. The likes of Pret A Manger will need to restructure as a result and will come back with a different shape and scale. 

The debt funds are well-positioned and debt finance will be available for those businesses the market has confidence in. Where a business has fallen over or gone into insolvency, it may be that covid-19 has only exacerbated issues that were already there. But for companies that were well run and are well positioned, finance will be available, and funds are also going to be getting involved with larger corporates than in the past. 

We will see the continuing retrenchment of the banks, which has been happening since the financial crisis, and those lenders will increasingly focus on the retail banking sector under pressure from government to support the wider public. That allows the private debt funds and private equity to position themselves well to go after a far bigger slice of the corporate market.

Specialists in restructuring

At Ocorian, we are actively looking at ways in which COVID-19 is having an impact on the debt capital markets, in particular debt restructuring and corporate insolvency. Our team of corporate trustee experts have years of market experience in securitisations, complex restructurings, defaults and downgrades. We would welcome further discussion with you on how COVID-19 is affecting your business while we are happy to share our commercial and practical experience.

To discuss how our restructuring support services could help you, get in touch via my profile below or click here to read more about our restructuring support services.

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