Ohhh!! K
During last month’s webinar, Bond Capital Private Credit together with its friends from Goldman Sachs and Deloitte discussed the current market for private capital, deal flow and trends. Below are the main takeaways:
K-Shaped Recovery
COVID-19 has divided the economy into two subsets. On the higher end of the spectrum is the performing “Market Darling”, who continued to show growth despite troubled times – think zoom, grocery and pets. On the other hand, at the lower end of the spectrum are companies who are struggling to stay afloat or whose business models need transformation – think concerts, airlines, restaurants and cinemas. The divergence of the economic subsets resembles the two arms of the letter “K”. For companies on the upward arm of the “K” there is ample capital. On the downward portion of the “K” capital availability is dear except for oddly, large unrated bonds.
Liquidity is King
Pre-COVID Bond Capital advised company CFOs to keep six months of liquidity to weather through the up-and-downs of the business cycle. In 2021, Bond Capital is recommending that CFOs find ways to keep up to twelve months of liquidity. This is because there are still many uncertainties around counter party risk (bad debts / supply chain disruption / bank facility reduction / bank demand rights) and the path of the virus. Some ways CFOs can create these additional months of liquidity are by swapping ABL facilities into term loans to create availability and or seeking an increased revolver facility and or reducing the cash collection cycle and or identifying alternative sources of capital like private debt. You should also know that Bank loan loss provisions are being reversed since there were fewer insolvencies in 2020 compared with 2019. This makes it a very good time to talk to a trusted expert about your safety capital needs.
Equilibrium between Flexibility and Cost
Pre-COVID, Company CFOs were cost-sensitive and would often choose lower cost over added flexibility when structuring their debt financing. In 2021, CFOs should consider if flexibility is now more important than cost. To illustrate, the benefit of negotiating smaller scheduled payments and a longer duration is increased liquidity to help weather uncertain economic recovery scenarios. Furthermore, a smaller payment schedule can be augmented with the right to make additional voluntary payments along the way in the event the CFO discovers later that things are not as bad as one first thought.
About Bond Capital
Bond Capital is an award-winning private credit fund. As a direct lender, Bond Capital provides advice and money across the entire risk curve. Bond Capital structured credit financing enables business owners to maintain control ownership in exchange for yield and capital preservation. Across multiple cycles and for nearly 20 years, Bond Capital has advanced secured investment quality credit to lower middle market companies throughout North America.
K-Shaped Recovery
COVID-19 has divided the economy into two subsets. On the higher end of the spectrum is the performing “Market Darling”, who continued to show growth despite troubled times – think zoom, grocery and pets. On the other hand, at the lower end of the spectrum are companies who are struggling to stay afloat or whose business models need transformation – think concerts, airlines, restaurants and cinemas. The divergence of the economic subsets resembles the two arms of the letter “K”. For companies on the upward arm of the “K” there is ample capital. On the downward portion of the “K” capital availability is dear except for oddly, large unrated bonds.
Liquidity is King
Pre-COVID Bond Capital advised company CFOs to keep six months of liquidity to weather through the up-and-downs of the business cycle. In 2021, Bond Capital is recommending that CFOs find ways to keep up to twelve months of liquidity. This is because there are still many uncertainties around counter party risk (bad debts / supply chain disruption / bank facility reduction / bank demand rights) and the path of the virus. Some ways CFOs can create these additional months of liquidity are by swapping ABL facilities into term loans to create availability and or seeking an increased revolver facility and or reducing the cash collection cycle and or identifying alternative sources of capital like private debt. You should also know that Bank loan loss provisions are being reversed since there were fewer insolvencies in 2020 compared with 2019. This makes it a very good time to talk to a trusted expert about your safety capital needs.
Equilibrium between Flexibility and Cost
Pre-COVID, Company CFOs were cost-sensitive and would often choose lower cost over added flexibility when structuring their debt financing. In 2021, CFOs should consider if flexibility is now more important than cost. To illustrate, the benefit of negotiating smaller scheduled payments and a longer duration is increased liquidity to help weather uncertain economic recovery scenarios. Furthermore, a smaller payment schedule can be augmented with the right to make additional voluntary payments along the way in the event the CFO discovers later that things are not as bad as one first thought.
About Bond Capital
Bond Capital is an award-winning private credit fund. As a direct lender, Bond Capital provides advice and money across the entire risk curve. Bond Capital structured credit financing enables business owners to maintain control ownership in exchange for yield and capital preservation. Across multiple cycles and for nearly 20 years, Bond Capital has advanced secured investment quality credit to lower middle market companies throughout North America.