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Why corporate refinancing is next up in the cycle of despair

Access to debt refinance has all but dried up for corporate treasurers. Those expecting tier back-up loan facilities to bail them out could be in for a nasty surprise. Alex Chambers looks at how companies can survive the liquidity crisis.


"A short while ago we had a transatlantic takeover a client wanted to undertake. It wasn’t that big but we simply couldn’t get enough firepower to bridge the loan between the four core relationship banks. Strategic ambitions have to be changed," says an investment banker.

Another banking official says: "We have a client that approached us to help finance its share buy-back programme. We simply had to say: ‘No it’s not of enough strategic importance’."

It is not just M&A and share buy-backs that will be curtailed by the broken financial markets. BHP Billiton pulled out of its takeover of Rio Tinto because of the $55 billion of debt financing the acquisition entailed. It is capex, the debt that is used for dividend payments in the sponsor world – it is even the refinancing of outstanding bonds or existing corporate loan facilities that corporates will struggle to implement. In October investment grade corporate bond issuance fell 71% to $83.5 billion. The market has since shown tentative signs of life, which will be a relief to those firms facing a significant debt obligation maturity in the coming year. Undrawn credit facilities might not be the get-out-of-jail card that many treasurers once thought they were – even if your counterparty is able to cough up, it might choose not to – citing a hidden material adverse clause.

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