We’re hopefully nearing halfway in the COVID-19 lockdown, and our team has been busy talking to a wide range of borrowers and bankers about debt funding issues. Key features of these recent conversations are summarized below.
1. Many businesses are working on their immediate survival by focusing on short term cashflows. Some are negotiating commercial rent reductions, and landlords appear generally as accommodating as they can be, all things considered. Some are claiming wage subsidies from the Government, greatly appreciating the simple application process and quick turnaround in payments. All businesses are closely reviewing their ability to reduce operating expenses and where possible, some are swiftly adapting and boosting their online operations.
2. “Safe harbour” changes to insolvency laws announced on Friday have eased many directors’ concerns about the interpretation of “reckless trading”. Once the NZ outbreak is under control and the timing of our exit from lockdown is clearer, directors and management will move to longer term strategic thinking. We expect to see some modify their operations slightly while others may completely transform their business models.
3. Corporate bank lending teams are under significant pressure from the volume of reporting and requests, particularly in the credit units. All major banks appear genuine in their desire to support their existing customers, and some banks are delegating greater decision authority to their relationship teams in order to achieve this. Meanwhile, the acquisition of new customers seems to have taken a backseat for the time being. The position of non-bank lenders with generally smaller portfolios is harder to gauge, but some are watching and waiting before getting back into the market.
4. Inevitably, it appears that some firms will not survive this crisis while others will thrive. Most businesses’ balance sheet will be weaker than they were beforehand, and many will need to recapitalize when the effects of COVID-19 subside. Most banks are clear that while they will consider increasing debt funding in the short term, the borrower will need to raise additional equity in the medium term and ensure that a relatively conservative level of gearing is maintained.
Our team has a strong track record in advising businesses on funding strategy and execution, including managing processes to raise both debt and equity. Our experience and relationships in the NZ financial markets allow us to help secure suitable long term debt funding for our clients, ranging from closely-held SME businesses to large publicly listed firms.