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A Pragmatic Approach to Post-Crisis Financing

by Luis Montesinos, Director, Treasury & Tax, Campofrio Food Group

Like many companies, Campofrio Food Group had to reinvent its treasury activities as a result of the global financial crisis. When the crisis struck, the Group was unrated, like many other Spanish companies. Although our turnover is high – around €2bn, we have relatively narrow margins, and a comparatively large debt position to manage. Over the past few years, we have reinvented our treasury activities to allow the company both to overcome the immediate crisis, and ultimately to benefit from a virtuous cash flow cycle and responsible attitude to financing. In addition to the decisions we have made within the business, establishing and leveraging the right bank relationships has been critical in achieving this.

A sea change for corporate finance

The ability for corporations like Campofrio to finance their business changed markedly over the course of the global financial crisis. Before 2008, we were effectively in a funding paradise: the markets were awash with liquidity, costs were low, competition amongst banks to offer financing was fierce and lending criteria were loose. For our business, the lack of a credit rating was not an impediment to accessing cheap financing, and few Spanish companies had sought a credit rating. At the same time, the inconsistencies between markets became very apparent: for example, at that time, I was working for a Spanish subsidiary of a French multinational. We were able to obtain more favourable financing rates at a subsidiary level than our Paris headquarters, which seemed illogical, with international banks offering better rates in Spain than in some other countries. Companies in Spain struggled with the impact of sovereign risk, as well as banks’ funding decisions based on their own credit quality. The crisis turned the market on its head, and we moved from one extreme to another. Market liquidity dried to a trickle, banks consolidated and tightened their lending criteria and companies that were reliant on the formerly abundant lending suffered.