Debt mountain

The Bank of England has today announced that it has held interest rates at 5.25%.  

This will possibly provide some relief to the UK’s debt laden businesses that have been facing an increasingly expensive cost of borrowing after 14 successive previous rate rises. Obviously, the maturity profile of a company’s debt effects the timing of when that company will be exposed to the higher interest rates and the extent to which refinancing pressures could expose them to financial distress. 

A report by the thinktank The Centre for Economics and Business Research (CEBR) has highlighted that many businesses took on debt during the pandemic to survive, particularly in sectors such as retail and hospitality.    These businesses will be struggling to service their existing debt amid the high interest environment and are likely to experience additional cost when looking to refinance as their existing deals mature.  Further pain is likely to be felt as businesses face weakening demand because of the squeeze on consumer’s discretionary spend caused by the cost-of-living crisis. 

The CEBR has forecast that 7,000 businesses are likely to fail every quarter in 2024.  This is a marked increases on the number of quarterly insolvencies in the pre-pandemic period (2015-2019) when they averaged 4,100. 

What should directors be doing? 

Faced with these significant headwinds it is essential that directors are pro-active in seeking professional advice and considering the financing options that are available to them. As insolvency practitioners we have significant experience in advising directors of distressed companies, using processes under the Insolvency Act (where appropriate) to preserve the underlying value in a business and maximising the return to all stakeholders.   

Additionally, our debt advisory team has an extensive network of banks, PE houses, venture capital funds, asset-based lenders and alternative funders if your business if looking to raise new debt or refinance. 

 To speak to Edward Ellis in more detail please click here.