Optimizing Corporate Debt: Control Costs or Improve Flexibility?

Whether your company is navigating market disruptions, preparing for tighter bank lending conditions, or assessing refinancing timelines, your treasury team must proactively manage your financial strategy to safeguard liquidity, mitigate risk, and capitalize on opportunities as they arise. At Redbridge, we have conversations with clients every day so we took the opportunity to compile the top seven questions treasury leaders are asking and the answers you need to navigate these financially volatile times.

With Corporate Debt, the Devil is in the Details

When it comes to evaluating your corporate debt facilities, it’s critical to look beyond the headline pricing and assess the total value of the facility and the relationship. While cost matters, a low-rate loan that is poorly structured can result in higher long-term expenses through hidden fees, rigid covenants requiring amendments, or missed strategic opportunities. Finance leaders must evaluate the entire borrowing agreement to determine its real financial impact.

Six Key Drivers That Influence Your Debt Pricing Strategy

1. Pricing Level and Fee Structure
   Is the quoted fee a commitment fee applied to undrawn balances, or a facility fee on total commitments? How are base rates (SOFR, etc.) defined, and are credit-spread adjustments added?
2. Bank Relationship Strength
   How well does the lender understand your business? Will the bank finance M&A activity or support you through covenant breaches? A strong banking relationship can drive financial flexibility when it matters most.
3. Operational Efficiency of the Facility
   How easy is it to draw funds? What are the operational hurdles? Which currencies are supported? Smooth operations contribute to overall debt facility optimization.
4. Flexibility for Growth
   Are there prepayment penalties? Can the lender assist with M&A strategy and financing? A flexible structure supports long-term capital planning.
5. Covenants and Baskets
   Are leverage tests based on gross or net debt (remember: cash matters)? Pay close attention to permitted baskets for dividends, debt, and acquisitions—and the process for requesting exceptions. Covenant negotiation is key to executing your growth strategy.
6. Pricing Grid Structure
   Understand how definitions affect your pricing tier as it is not always straightforward. Would offering a higher “opening” pricing level help lenders secure internal approvals? Credit agreement strategy starts with reading the fine print.

Hidden Levers in Debt Pricing: Capital and Side Business

Some of the most important drivers of pricing are the capital requirements tied to your facility and the ancillary business you provide to your bank.

• Capital Requirements are influenced by Basel rules, internal facility ratings, and expected loss models. Strong, liquid collateral can reduce spreads.
• RAROC (Risk-Adjusted Return on Capital) determines how banks price risk. Spreads are set to meet return thresholds after capital, bank expenses and loss adjustments.
• Ancillary Wallet Share – including treasury services, FX, derivatives, or investment banking, improves your debt pricing power. A diversified wallet helps increase the bank’s return, improving your negotiating power.

Why You Need Regular Debt Facility Reviews

Ongoing debt facility reviews are essential to optimize your cost structure and maintain strategic flexibility. Redbridge helps corporate finance teams:

• Evaluate the RAROC and qualitative metrics impacting your facility.
• Benchmark against similar credits and debt structures.
• Negotiate definitions, grid tiers, and covenant baskets using real-world benchmarks.
• Explore alternative debt structures, including asset-backed lending, private credit, or debt capital markets.

Optimizing Debt: You Don’t Need to Choose Between Cost and Flexibility

While market conditions always set the stage, details matter. With Redbridge’s experience negotiating credit agreements and evaluating complex debt structures, we help clients identify hidden costs, avoid overpaying, and design corporate debt facilities that balance cost with strategic freedom.

A debt structure analysis can uncover hidden value and improve terms without sacrificing flexibility. Treat your debt with precision and get more value from every dollar you borrow.