Refinancing Considerations for Borrowers: Key Insights for Success

Refinancing existing debt can unlock significant benefits for borrowers, including lower interest costs, increased financial flexibility, and the consolidation of existing debt facilities. However, given the complexity of today’s debt market and the infrequency of refinancing transactions (typically completed every 4–5 years), borrowers must approach the process strategically to secure optimal terms. Below, we highlight the key considerations for a successful refinancing and how HMT can assist.

Define Clear Financing Objectives

Every refinancing process has a unique set of financing objectives, whether it’s optimising pricing, consolidating debt, securing additional headroom in covenants, or unlocking debt capacity for acquisitions. These objectives can be overshadowed by time pressure or the complexity of involving multiple lenders in the process. To ensure the best possible outcome, it’s crucial to remain focused on those objectives and prioritise them clearly.  This prioritisation, will serve as a guiding framework, shaping decision-making and negotiation strategy throughout the process.  

Select the Right Lenders

To align with the financing objectives, selecting the right group of lenders is crucial. For straightforward refinancing needs, a combination of traditional high-street lenders and challenger banks is often sufficient. However, when addressing more complex financing challenges, such as bridging funding gaps or supporting growth, it’s advisable to approach lenders with a higher risk appetite and alternative lending criteria. For instance, asset-based lenders or those focused on recurring revenue can help unlock additional debt capacity from the balance sheet or revenue streams. Additionally, unitranche and mezzanine lenders may be more comfortable providing financing at higher leverage levels, making them suitable for maximising debt capacity.

The current debt market offers more options than ever but navigating this landscape can be challenging for borrowers with limited refinancing experience. A trusted advisor with up-to-date insights into lender preferences and recent transactions can provide invaluable guidance in identifying and engaging the right lender pool.

Timing is Crucial

Refinancing plans should begin ideally two years before the debt matures. Auditors require a 12-month “going concern” horizon from the signing of financial statements, necessitating early preparation. Prolonged processes that slip closer the maturity date can inadvertently strengthen the position of incumbent lenders, who may leverage reduced competition to offer less favourable terms.

Additionally, lenders’ internal credit processes are subject to more scrutiny and therefore demand more time and information, further highlighting the importance of early action.

Prepare a Strong Information Package

A tailored information package is the cornerstone of any successful debt process. This package should include a management presentation that covers the business’ strategic plans for the next 3–5 years and address lenders’ key credit focus areas. Lenders are more risk-averse than the board of directors / equity investors, so the messaging must balance growth ambitions with a clear demonstration of risk mitigation strategies.  Lenders also need to meet with management to provide confidence that the executive team has the experience and capability to run the business on a day-to-day basis.

Given recent market dynamics, it’s also vital to address issues such as, for example, cost inflation upfront. In that example, proactively showcasing how inflationary pressures have been managed can enhance lender confidence.

How HMT Can Help

HMT is a boutique corporate finance firm specialising in advising entrepreneurial businesses. With over 10 years of experience in debt advisory, we help clients position themselves strategically from a credit perspective, ensuring they attract the right lenders and secure optimal terms.

To give recent examples, we advised the AIM-listed ASIC designer and supplier EnSilica on a refinancing that replaced its existing debt structure with more flexible facilities, reducing interest costs and unlocking greater financial flexibility.  We also advised fulfilment solutions provider, Diamond Logistics, on their multi-million pound fundraise with growth capital provider Frontier Development Capital.

If you’re considering refinancing, HMT can guide you through the process from planning to execution to achieve your financing goals. Reach out to learn if you’d like to have a conversation and learn more about how we can help.

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