Is debt restructuring the solution?

Since March 20, over 1 million UK businesses have borrowed nearly £43bn in Government backed loans (£29.5bn BBLS), a figure which excludes any ‘normal’ commercial loans from funders. It also excludes HMRC deferred payments; arrears of rent; and any build-up in trade debts which have been necessary to ride out the crisis.

This latest news comes on top of figures for 2019 which suggested that UK corporate net debt had risen for the eighth year in a row; some 70 per cent higher than the low point in 2011; and with most of this increase in the period 2016-2019.

One of the many challenges for UK corporates coming out of the enforced lockdown is going to be the ability to repay and service the new debt, and their pre existing debt. Whilst for many borrowing was absolutely the right thing to do to ensure survival, as we exit lockdown and forecasting becomes slightly easier it may become clearer that repaying and servicing in the medium term is going to be difficult.

Gareth Harris, partner at RSM Restructuring Advisory LLP, comments: ‘What is clear is that all of the key stakeholders and funders are keen to be supportive and work with their existing borrowers to provide solutions.  However, there are going to be some borrowers who will simply not be able to repay all creditors in full, and where slightly more radical solutions are required.  Those borrowers ought to be reassured that there are solutions available which may include informal deferral arrangements, CVA’s, balance sheet/ debt restructuring and the new Restructuring Plan.  What is going to be key is early identification of the issue, and aligning all the affected stakeholders.