Strategies Learnt from the Financial Crisis
by Sarah Greenall
The arrival of the financial crisis coincided with approaching maturity dates for many corporate borrowing facilities which needed to be repaid or refinanced. Treasurers also continued to receive requests for financing to support the needs of their companies. Broadly speaking, the loan markets continued to function effectively and deals got done, albeit not on the terms seen previously. According to data from Thomson Reuters, global syndicated loan proceeds were close to US$2trn in 2009, US$3trn in 2010 and US$4trn in 2011. There were some notable successes, for example the Association of Corporate Treasurers Deals of the Year in the Loan category including Heidelberg Cement’s E3bn revolving credit facility and ABB’s $2bn syndicated loan. In addition there were those deals which on receiving negative feedback from the market had to be revised and re-launched with different terms.
Of course every deal is different, but common features can be observed amongst some of those deals which were successful as well as those which were not. A key determinant of success was and continues to be a robust group of long-standing relationship banks. It is not possible to specify the ‘right number’ of banks: for some companies that may be five or six, others may need twenty to thirty. This will be a function of the quantum of funding that the company needs, its credit profile, its bank needs and the size of its ancillary business wallet.
It is not possible to specify the ‘right number’ of banks: for some companies that may be five or six, others may need twenty to thirty.
An obvious risk comes about from over-reliance on a small number of banks. If one or two fall away, it may call into question whether the residual amount raised will be sufficient to meet the needs of the company, or whether the remaining banks will be willing and able to step up with additional commitments. During the credit crunch, many banks were forced to be highly selective in choosing which clients they could continue to support due to their constrained balance sheets. It was not uncommon to see at least one, if not several banks fail to renew their existing lending commitments. Certain banks retrenched back to their home markets, with some, particularly those in receipt of government financial support compelled to support national champions in preference to overseas clients. Whilst market conditions have since eased up, the risks and potential negative consequences of having too small a bank group remain, and these should be given consideration.