Recapitalisation: Rebalancing the balance sheet

Published on 15th Oct 2020

Covid-19 burdening balance sheets

The impact of Covid-19 has placed considerable financial stress on UK businesses. The immediate need for liquidity has in many cases been solved – temporarily, at least.

However, many businesses will over the coming months be faced with a need to manage what could be an unsustainable amount of indebtedness arising from legacy facilities, new and/or additional borrowings, as well as deferred payment obligations to counterparties. Such over-indebtedness will need to be tackled, both for the interests of the companies themselves, but also for the UK economy, employees and other stakeholders.

The positive news is that there are various measures that companies can take to strengthen their balance sheets in order to improve their short and long term financial resilience. These include fresh equity investments, cash-retention tools designed to achieve deleveraging, and debt restructurings in or outside of formal procedures. We term these, collectively, "recapitalisation" and, in this note, we examine how they might be deployed, alone or in parallel with other solutions.

It is also worth appreciating that this is an opportunity for many companies, including those with more stable financial positions, to take stock of their position. Now is a good time for all companies to think about and consider the best structure for the long- and short-term financing of the business and examine the opportunities available for building the foundations for strong future growth.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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