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 were very active, albeit at higher spreads than previously. A few regulatory impacts increased capital for some banks, which caused a slowdown in the second half of the year, and some failed syndications, particularly in certain sectors like oil and gas. We expect banks to have a measured appetite for lending this year, as economic uncertainty is top of mind.

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, 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 Caesars Entertainment, Transocean and Dish Network 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 a 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.

Companies should also consider alternative sources of liquidity. The high yield market has seen some recent windows of opportunity but could remain volatile given uncertainties about inflation and recession. It is important to prepare in advance in order to be ready when the timing is right by working on your credit ratings.

Unfortunately, this market is not accessible to all borrowers. Meanwhile, factoring has been growing for a wide range of companies, from smaller to large corporations. The price of factoring has increased 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, sponsor transactions 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 it up by saying it’s vital for companies not to postpone their opportunities for raising 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.

We recently surveyed over 30 banks in the US, including large national banks, large regional banks and smaller local banks. ESG was of high importance to 38% and developing importance to 24%. Almost all banks see it continuing to grow in importance over the next few years. The current focus is starting with higher emission sectors such as oil and gas, construction and automotive, but will be extended over time. As with most things these days, ESG is influenced by political considerations, causing conflicting incentives for the banks.

– 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 being advisory engagements on debt structure 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
  • 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 concerns companies have about accessing bank liquidity over the near term.

– 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 even more as we’re continuing to work towards obtaining a broker-dealer license.

Given the difficult macro backdrop, it seems clear that making the right plan will remain important as low probability economic shocks are becoming ever more probable. 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.

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