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Time for recapitalisation

For businesses struggling with debt caused by the pandemic and lockdowns, and those that performed well, investment is crucial as they face pressure from shareholders and lenders. Amy Carr of Burges Salmon asks if 2021 will be the year of recapitalisations.

Corporate Financier article image - March 2021 COVID-19 has had an unprecedented impact on businesses, and many have had to secure additional borrowing in order to survive the financial challenges they are facing. In September 2020, TheCityUK Recapitalisation Group estimated that there could be up to £70bn of unsustainable debt held by UK businesses. Up to £23bn of this would have been funds provided under UK government loan schemes such as CBILS, CLBILS and BBLS. At the time of that report, £13.7bn, £3.5bn and £35.5bn of facilities had been approved under those three government schemes respectively.

Since then, some will have taken on more debt or drawn down more under existing debt facilities. Others will not have suffered badly, and some will actually have done better, of course. If TheCityUK’s prognosis was correct in September, it is difficult to see how it would have become easier for stressed businesses since then. Particular sectors – travel, hotels and leisure perhaps being the most obvious – have seen timescales of the challenges extended. And of course, others have been affected by the UK leaving the EU at the end of 2020.