liquidity

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Innovative asset-based lending is on the rise as a means of attracting new lenders while maintaining the strategic support of existing creditors.

By Francesco Lione, David Walker, Tom Evans, and Catherine Campbell

Raising fresh capital for portfolio companies in times of financial stress is always a delicate balancing act between attracting new lenders and maintaining the strategic support of existing creditors. The almost instantaneous halt in cash flows and scramble for new capital injections precipitated by the COVID-19 pandemic has significantly changed traditional approaches to collateral — giving rise to new financing opportunities for sponsor-backed deals and businesses. Regardless of debt market buoyancy, these new financing techniques are here to stay, having demonstrated value in overcoming creditor scepticism during times of economic uncertainty and bringing a new way to increase leverage.

The Simplification Decree (Decreto Semplificazioni) follows and puts into effect the earlier attempt of the Italian cabinet to facilitate capital increases.

By Antonio Coletti, Isabella Porchia, and Marta Negro

Law no. 120/2020 converting Law Decree no. 76/2020 (Decreto Semplificazioni), which entered into force today (Law no. 120/2020), introduces certain measures (see Article 44) facilitating capital increases by Italian private and listed companies needing to raise equity financing and counter liquidity shortage due to the COVID-19 pandemic.

The Recovery Decree aims to rapidly raise equity financing and counter liquidity shortage.

By Antonio Coletti, Isabella Porchia, and Guido Bartolomei

Law Decree, approved on 13 May 2020 (Recovery Decree) introduces provisions facilitating capital increases by Italian private and listed companies to rapidly raise equity financing and to counter liquidity shortage.

In particular, article 45-bis of the Recovery Decree (in the draft available pending publication in the Official Gazette) provides:

Boards of struggling companies (and their auditors) must navigate choppy waters in terms of finalising their audited accounts in the midst of a global downturn.

By James Chesterman, Dominic Newcomb, Helena Potts, and David Cooper-Parry

The global downturn triggered by the COVID-19 pandemic continues to pose challenges to significant swathes of the worldwide economy. Companies across many industries and geographies have seen a precipitous decline in their operations and turnover.

Irrespective of liquidity positions, directors will also need to focus on whether they are able to publish “going concern” accounts and what their auditors’ opinion on those accounts will be. If directors can conclude a company is a going concern at the time of the audit, but harbour doubts about the future, this must be disclosed in the notes to the financial statements. This in turn can impact the basis on which both the accounts are published and the auditors’ opinion thereon prepared.

To raise new debt at a time of low liquidity, leveraged and other sub investment grade companies must navigate restrictions in loan and bond documents.

By James Chesterman, Helena Potts, James P. Burnett, and Karan Chopra

Many companies are seeking funding to survive the currently unquantifiable impact of COVID-19. This blog post will consider issues arising in leveraged and other sub-investment grade structures from which all commitments are drawn, or are otherwise not available for drawing, and therefore new funding sources are required. In these structures, contractual restrictions and high leverage can make it harder to accommodate new debt.

Material adverse change provisions in credit agreements are under much heightened scrutiny in the current circumstances.

By James Chesterman and Helena Potts

In the current environment, both corporates and their lenders are trying to assess a fast-moving situation. Businesses are suspending operations, countries are limiting travel and non-essential activities, events are being cancelled and consumers are in actual or semi-lockdown.

At present, credit arrangements are an important source of cash for companies, and continuation of trade is a function of continued access of those credit lines. An absence of liquidity may force a board of directors to consider whether a company can continue to trade as a going concern in many jurisdictions. In many cases, this consideration involves an assessment of access to available lines of liquidity and credit, as well as a company’s ability to continue to meet its ongoing payment obligations.

UK-based offshore and subsea oil & gas services company solidifies its position and completes ownership transfer to noteholders in major company milestone.

By John Houghton and Marc Hecht

The recent Bibby Offshore recapitalisation[1] is as fair and equitable a restructuring as the media has seen, offering creditors an example of what an effective restructuring requires. This case study exemplifies the key points that companies facing unpredictable market conditions must consider:

  • The correct restructuring solution
  • Deft management of shareholder dynamics
  • Careful handling of stakeholder expectations

By Manu Gayatrinath and Katherine Putnam

Since the 2008 financial crisis, the US Federal Reserve and other central banks in Europe have pumped trillions of dollars into the financial markets. Notwithstanding the amounts injected, a liquidity crunch in 2016 is unavoidable and could have a significant impact on available financing for PE sponsors.

Several regulatory factors point to this liquidity crunch, including new financial regulations that demand higher capital and liquidity requirements from banks, which must hold more cash in reserve.liquidity graphic Basel III, for instance, requires banks to maintain certain liquidity coverage ratios such that they have high-quality liquid assets that cover total expected net cash outflows over 30 days. Similarly, the Board of Governors of the Federal Reserve has brought in significantly tougher liquidity requirements for the larger bank holding companies in the US. In addition, increased enforcement of leveraged lending guidelines means that US banks are no longer as active in the syndicated markets as they once were, and are no longer in a position to hold certain riskweighted assets on their balance sheets.