Potential financing solutions
As well as preserving and maximising existing cash, you should also consider fund-raising options. These will depend on a number of factors, including the nature and severity of the liquidity pressures, the time available, the identity and attitude of stakeholders (both owners and lenders) and the nature of your company's business. Key issues for consideration include the following:
- is funding available from elsewhere within the corporate group?
- is any other group company willing and able to make an intercompany loan?
- are there any intercompany receivables that you could call to be repaid?
- these options are unlikely to be available where liquidity pressures are being experienced by the entire corporate group. There may also be corporate benefit issues to consider
- who are the company's shareholders and would they be willing to provide new finance in the form of loans or a new subscription for shares?
- for privately-owned companies, what is the financial position of the owner or sponsor and their appetite to provide further cash? If the company is over-indebted, shareholders may not be willing to provide further cash without some form of compromise by lenders (eg a debt write-off)
- is there scope for a rights issue in the case of a listed entity?
- is it appropriate/feasible to identify and approach potential investors with a view to them taking a stake in the company and providing new funding?
- are there further funds available under any existing debt financing facilities and/or is it possible to secure new facilities?
- are there any existing lenders to the company? If so:
- are existing facilities fully drawn or are further amounts available? Are lenders entitled to prevent the company drawing down further monies or rolling existing loans due to a breach and, if so, can they be persuaded not to?
- if existing facilities are fully drawn, would existing lenders be willing to provide further finance?
- are there any existing lenders to the company? If so:
- are any new lenders willing to provide facilities?
- are lenders willing to provide new financing on a permanent basis or only as a bridge to a longer-term solution? A short-term financing solution may be expensive but may provide vital time to formulate a longer term fix
- what type of facilities might be available/suitable?
- loans (secured or unsecured): lenders may only be willing to provide loans on a secured basis - does the company own suitable unencumbered assets to be offered as security or are existing lenders likely to allow their security to be shared?
- bonds: likely to be suitable for only the largest companies and will depend on market appetites, both generally and specifically in relation to the company
- factoring/asset-based lending: a discrete form of secured lending where funds equal to a proportion of the value of certain specific assets are advanced. This can be a useful way of monetising book debts in particular but also borrowing against assets such as stock and real estate
- could any other group company/the owner offer any guarantees in relation to new financing?
- could the company raise material funds through a sale of assets?
- how quickly might a sale process be run?
- are there any non-core assets/divisions that might make strategic sense to sell or would the company need to sell key/valuable assets?
- valuation: you will want to ensure that fair value is received for the assets but buyers may well seek a discount if a sale is (or is perceived to be) executed in distressed circumstances and/or on an expedited basis
- would any trade counter-parties be willing to provide financial support to the company (eg if they are dependent on it as part to their supply chain and have few immediate alternatives)?
- would existing financial creditors be willing to participate in a debt for equity swap to reduce leverage and clean up your balance sheet? (This may not be an attractive option for many conventional lenders save as a last resort, but we have seen some sophisticated distressed investors buy a company's debt with a specific "loan to own" strategy in mind. However, any such transaction is likely to take some time to negotiate and execute).
- consider any restrictions in your existing financing arrangements on any of the above measures - are there any restrictions on:
- new financial indebtedness being incurred and/or any new security being provided?
- new money injections by shareholders, even in the form of equity?
- asset disposals (including not only outright sales but also sale-and-leaseback and other arrangements)?
- change of control (of company ownership or governance) or compromises with creditors?
