Debt markets have been impacted over recent weeks and this is causing boardroom anxiety…
In recent weeks, as a result of the fall-out from the ex-Chancellor’s mini-budget, we have had incoming enquiries from many clients and investors concerning the debt profiles of their businesses. Conversations are now also focussing on the impact of the Autumn Statement last week, with the key questions for each business right now being:
When do these debt facilities expire and when is the optimal time for the business to refinance them?
Who are the lenders providing these debt facilities and what is the relationship the business has with them?
Are there financial covenants included within these debt facilities and how is the business now forecast to perform against these given the changing macroeconomic outlook?
What are the associated costs of these debt facilities, particularly interest rate margin costs that are being reviewed by lenders right now and rising reference rates including SONIA?
Are of any these interest rate costs being hedged/protected by the business?
Is the business considering future M&A to support growth and what is the potential role that debt can play in funding this strategy?
NEDs should be aware of these conversations and as a priority should be considering right now:
What is the strategy for debt and is it a priority that is on the Board’s agenda now?
What is the optimal debt structure for the business and how does this align to investors’ expectations?
What is the plan for any potential market announcement obligations, eg. financial covenant pressure, debt facility refinancing obligations or working capital / going concern issues?
Revised Pre-Emption Group Statement of Principles
This follows the recommendations of the UK Secondary Capital Raising Review. These principles apply to companies (wherever incorporated) with shares admitted to the Premium Listing segment of the Official List. Companies with shares admitted to the Standard Listing segment of the Official List, the High Growth segment and trading on AIM are encouraged to adopt these principles.
The Pre-emption Group has published a revised Statement of Principles permitting companies to disapply the statutory pre-emption rights for up to 20% (on a 10% + 10% basis) of their issued share capital in any one year. Interestingly, there is also a further authority of 2% for follow on offers (designed to accommodate retail, including existing shareholders) showing how quickly the democratisation of public equity markets has advanced. Companies seeking to raise finance now must be very sensitive to the needs of retail and private investors and design their fundraising strategy to focus more broadly than simply core institutional supporters.