Corporate debt and equity financing structures can evolve significantly over time and capital structures that were once optimal can become unwieldy, constraining or inefficient in a new life cycle phase for any business. When financial decline profiles emerge too, addressing capital structure issues can become much more challenging.
Success is often dependent on having a clear understanding of major financial stakeholder positions, assessing and modelling options, and engaging in commercial negotiations to achieve an appropriate compromise. The complexity involved in navigating a range of scenarios with different implications for each stakeholder class is not something that should ever be underestimated.
Having a credible professional Financial Restructuring advisor supporting the process of developing realistic options capable of being accepted by financial stakeholders in scenarios where risk appetites and behaviours can shift seismically, is often essential.
As a result of the COVID-19 environment we have observed a significant increase in debt leverage profiles on corporate balance sheets which in the medium to longer term could constrain growth and be unsustainable. We anticipate Financial Restructuring activity increasing quite significantly and would encourage corporate borrowers to consider their options early.
KPMG’s Financial Restructuring team has acted for major banks, credit funds, bondholders and lending institutions for many years and understands how each view different capital structure issues.
The team also uses this knowledge and experience to support corporate clients in brokering appropriate, credible and deliverable compromise transactions and solutions using a tried and tested approach:
|Appraisal and stabilisation||Options assessment||Stakeholder negotiations|
|Development of solutions||Implementation||Ongoing monitoring|
KPMG Restructuring Enterprise Finance team assists privately owned companies - with a debt funding requirement of up to £10 million- to access and structure the most appropriate debt package for their needs. Our national team has knowledge and transactional experience across a wide variety of debt financing solutions.
Our support can range from introductions and advice on the commercial aspects of a deal, through to helping prepare an information package and managing a financing process. We work with owners to understand the key drivers of their business and help shape their debt funding requirement, so as to ensure that lenders are approached with a debt structure that works for each business.
The scope of our services and fees is agreed up front and detailed in an engagement letter, however we do not charge for a first meeting and indicative debt capacity assessment, where we can give an illustration of how the financing process may look.
When a business enters a period of financial stress or distress, business owners often find their time, energy and focus becomes consumed by a range of internal and external stakeholders, reducing capacity to focus on the critical priorities.
Our approach in supporting clients with Stakeholder Management is perhaps best described as ‘being at your side’ as a consistent point of consultation.
The overall purpose of our involvement in this type of scenario is to provide you with the tactical guidance, insight and analysis required to engage constructively and productively with your key financial stakeholders.
Our aim is always to help you avoid unnecessary confrontation or the escalation of the situation and importantly support you in maintaining control over your own corporate destiny.
From our experience, we find that maintaining active and open dialogue with financial stakeholders is often the basis on which to build an effective restructuring solution. However, knowing what, when and how to provide information to lenders or investors in a scenario involving financial stress or distress is really something that only comes with experience.
Getting that right can make all the difference, but our work would typically involve the following:
Helping our clients navigate a path through these scenarios is at the heart of everything we do, but it’s often the most difficult and complex part of a rescue or turnaround project. Understanding what and who needs your attention at each stage is something that takes significant specialist experience. Whilst this sort of scenario will be new to most businesses and their management teams, at KPMG Restructuring this is very much the ‘every day’.
The Pensions Advisory practice offers advice to the sponsoring employers of pension schemes. We deal with a diverse range of stakeholders, including Trustees, Shareholders, the Pensions Regulator, the Pension Protection Fund, providers of finance, and all of the main employer covenant advisors. We advise corporates across the full range of situations from regular triennial covenant reviews and ongoing monitoring through to assisting negotiations and implementing complex transitions and restructurings. Find out more about the work we do here.
If your company’s financial results start to move off-track it would be quite common for some of your stakeholders to want to take a closer look to get comfort their financial stake in your business is secure. To help them make that assessment they might instruct an Independent Business Review (an “IBR”).
The accounting firm engaged to perform the IBR will likely run a range of scenarios over your own financial forecasts to ‘stress test’ potential outcomes and look at the impact of those on your liquidity. They will then present a report to your lenders which will include a series of recommendations. It is likely you will be asked to attend a completion meeting and discuss these points.
Clients instruct us in this scenario because they recognise how it important it is to achieve the right outcome. We can ask the questions and probe the risk areas in your financials in a ‘friendly’ setting before you have to release them to the external advisor appointed to do the IBR.
This will give you the opportunity to revisit your forecast assumptions and rehearse your response to any robust challenges. It will also give you the opportunity to address any errors or omissions in your financial records and back-up data. We may also be able to sit alongside you and participate in your dialogue with the advisor firm and your financial stakeholders to again help you achieve the best result.
KPMG has been involved in this type of scenario for decades. We are often asked by secured lenders and other financial stakeholders to undertake IBRs of customers and investee companies on their behalf. We are trusted by all of the main UK clearing banks and a variety of other lenders and financial investors.