In 2022, Didier Philouze, Head of Debt Advisory at Redbridge, and his team raised more than €10 billion of financing. In this interview he looks back at the past year in the debt markets and considers what may be to come in 2023
– What’s your outlook for corporate financing in 2023?
– Didier Philouze, Redbridge: Last year, banks have left the credit floodgates open, albeit at higher spreads than previously. But we expect them to have a more measured appetite for lending this year. Higher interest rates have increased their cost of capital and triggered them to conduct strategic reviews of their liability portfolios – the full effects of which we’ll see later this year. Banks will continue to raise their credit margins and their credit committees will be more selective..
At the same time, the bond markets seem to be digesting the sharp rise in interest rates and regaining some confidence, as we can see with the return of issuers such as Terreos, Telecom Italia and Faurecia to the high-yield segment in January and the completion of amend & extend transactions on the leveraged loan side.
That said, the reopening of bond markets will be gradual and will undoubtedly experience back-and-forth, particularly for issuers with the riskiest profiles. Every bit of bad news will create concern.
– What does all this mean for corporate financing strategies?
– When it comes to bank financing, companies looking to strengthen their financial structure should not waste time as the tightening of market conditions has only just begun. For companies seeking to refinance existing debt, carrying out an amend & extend will enable them to keep their current financial terms and conditions in place. That means they can postpone discussions with lenders until the environment normalizes.
But companies should also consider alternative sources of liquidity. The NEU CP market, for example, remains active and competitive, with over €55 billion outstanding as at the end of January. Unfortunately, it’s not accessible to all types of borrower. Meanwhile, factoring has been growing for several months. The price of factoring has appreciated less than it has for other types of financing and it’s open to borrowers whose credit profile has suffered as a result of the current economic climate. Factoring also has the advantage of being less capital-intensive for banks.
With economic conditions becoming more difficult, there’s been an increase in direct lending and special situations funds. This has been particularly noticeable in the energy sector in the US, which is facing the withdrawal of European banks and institutional investors due to environmental concerns. US banks are also reducing their exposure to borrowers in this sector that don’t have a convincing ESG policy.
I’d sum up by saying it’s vital that companies don’t postpone the opportunity to raise debt – if they wait, they risk seeing the window of opportunity close.
– How important is ESG?
– ESG has a big role to play in facilitating negotiations and access to liquidity by broadening the base of potential lenders. What’s more, companies perceived to have a strong commitment to sustainability can obtain improved terms and conditions.
ESG financing accounts for more than half of the financing arranged by Redbridge. When arranging this kind of financing it’s vital to ensure that the ESG indicators chosen are in line with the company’s strategy and that the market deems them relevant. The financial implications of the ESG objectives not being achieved must also be defined and negotiated in advance.
– Why should companies choose to work with Redbridge?
– We raise over €10 billion per year. We close between 35 and 40 engagements every year, three-quarters of which are financing transactions, with the remainder advisory engagements on debt structuring and credit profile positioning. This means we have a great deal of insight into what’s going on in the market.
Calling on our services means you gain access to our in-depth knowledge of market conditions and the capacity of each lender to mobilize at a given moment. We can let you know which banks haven’t raised their prices too much and haven’t used up their loan envelopes. We’ll also provide you with information on the conditions that the best bidders in the market are offering, which terms can be negotiated to provide flexibility without changing the price, which additional sources of liquidity would simplify negotiations with your existing lenders, and which ESG KPIs will give credibility to your company’s approach to CSR.
Our team can provide objective advice on all these subjects based on the experience we’ve built up working on a wide range of deals . We help companies with all kinds of credit, financing and liquidity issues. We’re currently working on a lot of rating and risk-adjusted return on capital / banking relationship consulting projects, which is indicative of the difficulties companies are facing in accessing bank liquidity at present.
– How do you intend to enhance the advice you provide to companies in 2023?
– We’re expanding our international footprint by continuing our development in Switzerland, Belgium, Italy and France. What’s more, our activity in the US is set to increase as we’re continuing to work towards obtaining a broker-dealer license.
Given the difficult macro backdrop, it seems clear that credit and equity issues will become much more important than they have been since the 2008 crisis. We are therefore pleased to announce the strengthening of our team with the arrival of a number of experienced former bankers, including Guy Silvestre, Pierre Bonnet, Margaux Randier and Cédric Le Brenn. We now have 17 people in Europe and the US serving both large- and mid-cap companies.
We have also launched a major internal project to structure our market intelligence and digitalize it with the aim of developing new technological solutions that best meet our clients’ needs.