Refinancing existing debt can unlock significant benefits for borrowers, including lower interest costs, increased financial flexibility, and the consolidation of existing debt facilities. However, given the complexity of today’s debt market and the infrequency of refinancing transactions (typically completed every 4–5 years), borrowers must approach the process strategically to secure optimal terms. Below, we highlight the key considerations for a successful refinancing and how HMT can assist.
Define Clear Financing Objectives
Every refinancing process has a unique set of financing objectives, whether it’s optimising pricing, consolidating debt, securing additional headroom in covenants, or unlocking debt capacity for acquisitions. These objectives can be overshadowed by time pressure or the complexity of involving multiple lenders in the process. To ensure the best possible outcome, it’s crucial to remain focused on those objectives and prioritise them clearly. This prioritisation, will serve as a guiding framework, shaping decision-making and negotiation strategy throughout the process.
Select the Right Lenders
To align with the financing objectives, selecting the right group of lenders is crucial. For straightforward refinancing needs, a combination of traditional high-street lenders and challenger banks is often sufficient. However, when addressing more complex financing challenges, such as bridging funding gaps or supporting growth, it’s advisable to approach lenders with a higher risk appetite and alternative lending criteria. For instance, asset-based lenders or those focused on recurring revenue can help unlock additional debt capacity from the balance sheet or revenue streams. Additionally, unitranche and mezzanine lenders may be more comfortable providing financing at higher leverage levels, making them suitable for maximising debt capacity.
The current debt market offers more options than ever but navigating this landscape can be challenging for borrowers with limited refinancing experience. A trusted advisor with up-to-date insights into lender preferences and recent transactions can provide invaluable guidance in identifying and engaging the right lender pool.
Timing is Crucial
Refinancing plans should begin ideally two years before the debt matures. Auditors require a 12-month “going concern” horizon from the signing of financial statements, necessitating early preparation. Prolonged processes that slip closer the maturity date can inadvertently strengthen the position of incumbent lenders, who may leverage reduced competition to offer less favourable terms.
Additionally, lenders’ internal credit processes are subject to more scrutiny and therefore demand more time and information, further highlighting the importance of early action.
Prepare a Strong Information Package
A tailored information package is the cornerstone of any successful debt process. This package should include a management presentation that covers the business’ strategic plans for the next 3–5 years and address lenders’ key credit focus areas. Lenders are more risk-averse than the board of directors / equity investors, so the messaging must balance growth ambitions with a clear demonstration of risk mitigation strategies. Lenders also need to meet with management to provide confidence that the executive team has the experience and capability to run the business on a day-to-day basis.
Given recent market dynamics, it’s also vital to address issues such as, for example, cost inflation upfront. In that example, proactively showcasing how inflationary pressures have been managed can enhance lender confidence.
How HMT Can Help
HMT is a boutique corporate finance firm specialising in advising entrepreneurial businesses. With over 10 years of experience in debt advisory, we help clients position themselves strategically from a credit perspective, ensuring they attract the right lenders and secure optimal terms.
To give recent examples, we advised the AIM-listed ASIC designer and supplier EnSilica on a refinancing that replaced its existing debt structure with more flexible facilities, reducing interest costs and unlocking greater financial flexibility. We also advised fulfilment solutions provider, Diamond Logistics, on their multi-million pound fundraise with growth capital provider Frontier Development Capital.
If you’re considering refinancing, HMT can guide you through the process from planning to execution to achieve your financing goals. Reach out to learn if you’d like to have a conversation and learn more about how we can help.
Refinancing existing debt can unlock significant benefits for borrowers, including lower interest costs, increased financial flexibility, and the consolidation of existing debt facilities. However, given the complexity of today’s debt market and the infrequency of refinancing transactions (typically completed every 4–5 years), borrowers must approach the process strategically to secure optimal terms. Below, we highlight the key considerations for a successful refinancing and how HMT can assist.
Define Clear Financing Objectives
Every refinancing process has a unique set of financing objectives, whether it’s optimising pricing, consolidating debt, securing additional headroom in covenants, or unlocking debt capacity for acquisitions. These objectives can be overshadowed by time pressure or the complexity of involving multiple lenders in the process. To ensure the best possible outcome, it’s crucial to remain focused on those objectives and prioritise them clearly. This prioritisation, will serve as a guiding framework, shaping decision-making and negotiation strategy throughout the process.
Select the Right Lenders
To align with the financing objectives, selecting the right group of lenders is crucial. For straightforward refinancing needs, a combination of traditional high-street lenders and challenger banks is often sufficient. However, when addressing more complex financing challenges, such as bridging funding gaps or supporting growth, it’s advisable to approach lenders with a higher risk appetite and alternative lending criteria. For instance, asset-based lenders or those focused on recurring revenue can help unlock additional debt capacity from the balance sheet or revenue streams. Additionally, unitranche and mezzanine lenders may be more comfortable providing financing at higher leverage levels, making them suitable for maximising debt capacity.
The current debt market offers more options than ever but navigating this landscape can be challenging for borrowers with limited refinancing experience. A trusted advisor with up-to-date insights into lender preferences and recent transactions can provide invaluable guidance in identifying and engaging the right lender pool.
Timing is Crucial
Refinancing plans should begin ideally two years before the debt matures. Auditors require a 12-month “going concern” horizon from the signing of financial statements, necessitating early preparation. Prolonged processes that slip closer the maturity date can inadvertently strengthen the position of incumbent lenders, who may leverage reduced competition to offer less favourable terms.
Additionally, lenders’ internal credit processes are subject to more scrutiny and therefore demand more time and information, further highlighting the importance of early action.
Prepare a Strong Information Package
A tailored information package is the cornerstone of any successful debt process. This package should include a management presentation that covers the business’ strategic plans for the next 3–5 years and address lenders’ key credit focus areas. Lenders are more risk-averse than the board of directors / equity investors, so the messaging must balance growth ambitions with a clear demonstration of risk mitigation strategies. Lenders also need to meet with management to provide confidence that the executive team has the experience and capability to run the business on a day-to-day basis.
Given recent market dynamics, it’s also vital to address issues such as, for example, cost inflation upfront. In that example, proactively showcasing how inflationary pressures have been managed can enhance lender confidence.
How HMT Can Help
HMT is a boutique corporate finance firm specialising in advising entrepreneurial businesses. With over 10 years of experience in debt advisory, we help clients position themselves strategically from a credit perspective, ensuring they attract the right lenders and secure optimal terms.
To give recent examples, we advised the AIM-listed ASIC designer and supplier EnSilica on a refinancing that replaced its existing debt structure with more flexible facilities, reducing interest costs and unlocking greater financial flexibility. We also advised fulfilment solutions provider, Diamond Logistics, on their multi-million pound fundraise with growth capital provider Frontier Development Capital.
If you’re considering refinancing, HMT can guide you through the process from planning to execution to achieve your financing goals. Reach out to learn if you’d like to have a conversation and learn more about how we can help.
Like many corporate finance advisory firms, the HMT team breathed a sigh of relief on 30th October when capital gains tax on the sale of a business was raised much more modestly than had been feared. The higher rate increased from 20% to 24% rather than a rate of up to 45% which was threatened with the purpose of aligning capital gains rates with income tax rates.
In most cases, would be vendors and investors seem to have shrugged their shoulders at this increase and whether or not the Government’s PR strategy was intentional here, there is currently a positive sentiment of “Phew ! ….. it could have been much worse” However, there continues to be a risk that future budgets will incrementally move capital gains tax rates closer to income tax rates. The tax burden on the sale of a business will therefore gradually increase beyond the impact of the measures of scaling back the benefits of Entrepreneurs Relief from the recent budget.
Despite strong and growing negative public sentiment towards the recent budget, there is probably more to come in terms of tax increases and we now know that “working people” is a much narrower definition than we might have imagined pre-election. However, looking on the bright side, the Government has demonstrated some concern for the competitiveness of the UK in business tax terms and has, so far at least, ensured that comparatively the business tax burden in the UK remains in line with other G7 countries.
In addition to the risk of an increasing capital gains tax burden, there are other issues would-be vendors need to focus on to ensure that they understand and reflect changes in the budget as they contemplate an exit.
The changes to national minimum wage and the increase in the rate of Employers NI will have a direct impact on the forecast EBITDA for almost all businesses. Raising the salary level for the lowest paid members of staff will, typically, have a knock on effect on salary levels throughout an organisation and we have already started to see this as clients respond to the budget changes. The degree of profit impact this will have will obviously vary with the scale of payroll and perhaps will lead to different decisions around employment vs contracting and offshoring vs recruiting UK teams. The use of technology to drive efficiencies and reduce staffing costs is likely to accelerate, particularly as AI starts to yield genuine use cases.
As the Government strikes a more interventionist note than we have been used to over recent years, it will be interesting to see whether a focus on particular sectors of the economy will have a knock on effect on investor and acquirer appetite. The narrative and energy around the property and construction sector has already seen a discernible positive shift and with the Chancellor’s focus on specific aspects of financial services in this month’s Mansion House speech, we might also see increased interest in aspects of sustainable finance, insurance and fintech (already a “hot” sector).
In the longer term it will be interesting to see whether the Government’s enthusiasm for harnessing accumulated pension pots to support investment in infrastructure, but also in private equity funds, will yield any kind of multiplier effect for the mid-market entrepreneur. The plans so far feel more like sound-bites than strategies and the detail behind the combining of local government pension funds to create a national investment fund suggests that the plans may encounter challenges en route.
The anticipated attack on private equity carried interests has so far been modest, and while further efforts to ensure that income is not able to be taxed as capital are clearly on their way, it is also clear that this will be subject to consultation and there is a wish not to impact the overall appetite for private equity investment while addressing a potential unfairness in the current system. It does not seem likely that for mid market businesses seeking private equity investment in the medium term, this is likely to have any material effect.
Finally, it may be that we are about to see a new corporate finance opportunity in the capital markets arena. Over recent years investors and entrepreneurs have typically ceased to see UK capital markets as a feasible exit route and the path to an IPO has been fraught with uncertainty (and cost). It is to be hoped that the planned PISCES market and other reforms to capital markets which are, as yet, a gleam in the Chancellors eye, might increase the options for UK entrepreneurs as they think about an exit.
In the short term, whilst the direction of travel has been set it seems to be business as usual, albeit with some slightly depressed profits and continued concerns about the balance between the cost of employment and the cost of living. In the medium term there is much that could go wrong with the Government’s strategy, not least the impact of global geopolitics, but there will always be opportunities for the brave and clever and as corporate financiers we look forward to supporting those entrepreneurs to build and realise wealth whatever the backdrop.
Like many corporate finance advisory firms, the HMT team breathed a sigh of relief on 30th October when capital gains tax on the sale of a business was raised much more modestly than had been feared. The higher rate increased from 20% to 24% rather than a rate of up to 45% which was threatened with the purpose of aligning capital gains rates with income tax rates.
In most cases, would be vendors and investors seem to have shrugged their shoulders at this increase and whether or not the Government’s PR strategy was intentional here, there is currently a positive sentiment of “Phew ! ….. it could have been much worse” However, there continues to be a risk that future budgets will incrementally move capital gains tax rates closer to income tax rates. The tax burden on the sale of a business will therefore gradually increase beyond the impact of the measures of scaling back the benefits of Entrepreneurs Relief from the recent budget.
Despite strong and growing negative public sentiment towards the recent budget, there is probably more to come in terms of tax increases and we now know that “working people” is a much narrower definition than we might have imagined pre-election. However, looking on the bright side, the Government has demonstrated some concern for the competitiveness of the UK in business tax terms and has, so far at least, ensured that comparatively the business tax burden in the UK remains in line with other G7 countries.
In addition to the risk of an increasing capital gains tax burden, there are other issues would-be vendors need to focus on to ensure that they understand and reflect changes in the budget as they contemplate an exit.
The changes to national minimum wage and the increase in the rate of Employers NI will have a direct impact on the forecast EBITDA for almost all businesses. Raising the salary level for the lowest paid members of staff will, typically, have a knock on effect on salary levels throughout an organisation and we have already started to see this as clients respond to the budget changes. The degree of profit impact this will have will obviously vary with the scale of payroll and perhaps will lead to different decisions around employment vs contracting and offshoring vs recruiting UK teams. The use of technology to drive efficiencies and reduce staffing costs is likely to accelerate, particularly as AI starts to yield genuine use cases.
As the Government strikes a more interventionist note than we have been used to over recent years, it will be interesting to see whether a focus on particular sectors of the economy will have a knock on effect on investor and acquirer appetite. The narrative and energy around the property and construction sector has already seen a discernible positive shift and with the Chancellor’s focus on specific aspects of financial services in this month’s Mansion House speech, we might also see increased interest in aspects of sustainable finance, insurance and fintech (already a “hot” sector).
In the longer term it will be interesting to see whether the Government’s enthusiasm for harnessing accumulated pension pots to support investment in infrastructure, but also in private equity funds, will yield any kind of multiplier effect for the mid-market entrepreneur. The plans so far feel more like sound-bites than strategies and the detail behind the combining of local government pension funds to create a national investment fund suggests that the plans may encounter challenges en route.
The anticipated attack on private equity carried interests has so far been modest, and while further efforts to ensure that income is not able to be taxed as capital are clearly on their way, it is also clear that this will be subject to consultation and there is a wish not to impact the overall appetite for private equity investment while addressing a potential unfairness in the current system. It does not seem likely that for mid market businesses seeking private equity investment in the medium term, this is likely to have any material effect.
Finally, it may be that we are about to see a new corporate finance opportunity in the capital markets arena. Over recent years investors and entrepreneurs have typically ceased to see UK capital markets as a feasible exit route and the path to an IPO has been fraught with uncertainty (and cost). It is to be hoped that the planned PISCES market and other reforms to capital markets which are, as yet, a gleam in the Chancellors eye, might increase the options for UK entrepreneurs as they think about an exit.
In the short term, whilst the direction of travel has been set it seems to be business as usual, albeit with some slightly depressed profits and continued concerns about the balance between the cost of employment and the cost of living. In the medium term there is much that could go wrong with the Government’s strategy, not least the impact of global geopolitics, but there will always be opportunities for the brave and clever and as corporate financiers we look forward to supporting those entrepreneurs to build and realise wealth whatever the backdrop.
