Every week, Insider invites readers of Insider News
to submit their questions about deals, corporate finance and funding to
top professionals from the North West dealmaking community.
This week, Mark Shackleton, the regional director at KBC Business Capital in the North West, has been answering your questions on asset-based lending.
All answers are for general guidance only. Each case must be handled on the individual facts.
Q: Are the banks ready to refinance their problem companies yet? You spoke about being ‘on the sidelines waiting to take centre stage’ a year ago.
A: “We are seeing more refinancing opportunities in the market place at the moment than anything else. The recession has put pressure on company earnings, which at best have remained level, and meant that companies are finding it hard to access additional funding via new overdraft and cashflow facilities.
“Asset-based lending is a credible alternative in the current tight lending markets and difficult economic environment. We are seeing genuine opportunities for companies looking to refinance more traditional senior debt structures in to new asset-based facilities where accounts receivable, inventories, plant & machinery and property can be combined to provide additional liquidity.
“There does appear to be a lack of genuine turnaround opportunities, which suggests that lenders are adopting a more 'care and maintain' approach, particularly where a business can service its debt burden even though the lending formulas may be out of kilter.”
Q: As traditional lenders like Bank of Scotland and Alliance and Leicester exit the market, do you anticipate new entrants from home and abroad filling the gap or a change to the funding model?
A: “We are bound to see change in the UK banking market as European Union competition legislation forces any bank who has received state aid from its sovereign government to dispose of assets in return for receiving that aid.
“This coupled with the need for banks to hold higher levels of capital has led lenders to actively reassess their business models as they look for new higher capital returns. Both of these will open up opportunities for new entrants.
“This is good news for the continued growth of the asset-based lending, which is a high-return-on-capital form of lending due to its much lower levels of credit losses when compared to more traditional forms of cashflow lending.”
Q: Where do you see the funding market for 'wheeled assets' heading over the next 12 to 18 months?
A: “As an asset-based lender, we approach the funding of 'wheeled assets' very differently to that of an asset financier who funds the purchase or leasing of this asset class. For us, if a business owns outright a fleet of 'wheeled assets', such as materials handling equipment or yellow plant, we will look to re-leverage this asset base along with an accounts receivable solution to provide additional liquidity for a refinance, restructure or for a change of ownership.
“A good example of this is the recent acquisition by CorpAcq of Carrylift that we completed only last month and the financial restructure of Quattro Plant we completed at the end of December.”