The first NOEL or all the same in the corporate finance world?

    Patrick Long, banking and finance partner at Gateley plc, the legal business of law-led professional services firm Gateley, explores the changes we’ve seen in corporate finance throughout 2017 and what we can expect to see in 2018.

    2017 has been hailed as the year of change with the aftermath of the Brexit result dominating UK politics, as well as the evolving political landscape across Europe and the US. But what impact has this had in the corporate finance sphere and what can we expect to see as we move into 2018? As the year draws to a close and with Christmas just around the corner, I thought it apt to set out the upcoming trends that we can expect to see in the debt-funding market as follows:

    New entrants

    The last few years have seen a rise in debt funds seeking to expand their lending offering to corporates. They, together with other non-traditional lenders, are able to offer unitranche facilities on a more flexible, covenant-lite basis and push the traditional lenders into a more super-senior role. Now well embedded in the marketplace, we are seeing this lead to even further diversification. Challenger banks are now considered competitors and are able to offer full-service debt funding to clients. Platform lending, peer-to-peer lending and advances in technology have afforded growing corporates the opportunity to access finance elsewhere than the traditional banks. All this has led to both increased liquidity and choice in the marketplace, leaving borrowers in a key position to strike a deal. We have seen little impact of Brexit and the changing global political landscape and we are still seeing plenty of activity and a very acquisitive marketplace.

    Other sources

    Structuring is king. No longer are borrowers asking solely for the traditional term loan/revolving credit facility (RCF) model. They are looking to other sources to diversify their borrowing and provide them with the flexibility they require in an ever-changing marketplace. This may be from asset-backed lenders or it may mean a step into the debt capital markets. Borrowers are becoming more savvy and are looking to debt advisers to assist them in navigating the increasingly complex choices they are faced with. This in turn is increasing choice and driving down prices for borrowers.

    Existing lenders

    Existing lenders recognise these changes and we have seen a push from the traditional players to work with new entrants and providers of other forms of finance to provide a comprehensive offering. This may mean acting in a super-senior role, providing an asset-based facility or looking at where they can provide ancillary services. No longer are they relying solely on the fact that they are in prime position to lend where they act as clearing bank and are actively searching for ways to work with clients to provide the flexibility they need.

    Lower margins

    There is a closing gap between the funds and the clearing banks. The amount of liquidity and choice is reducing prices for borrowers and we have seen a step down in margins. The first Bank of England interest rate rise in early November, (the first for 10 years which received somewhat of a neutral and negative reaction in the markets in the immediate aftermath, taking account of the future direction of travel), and the discontinuation of Libor by 2021 may see a general restructuring of pricing models and it remains to be seen the impact this will have on the corporate finance markets.

    It is fair to say that change has certainly become normal in the current climate and so is inevitable for the future. With this in mind and while the Thames Valley, (the top performing region outside of London according to the CBI) continues to prove itself ever resilient in times of change, businesses should be prepared for every eventuality.

    With long-standing experience of commercial business law, Gateley plc’s expert team is highly skilled in understanding how any business is likely to develop over time and how that will affect issues connected with its funding situation.