Money
Issue No. 13 - October/November 2003
Tendering Your Debt
by Mark Day
For almost all companies, the conundrum of how to get the best out of their banking requirements is most vexing.
On the one hand, most companies appreciate that their debt facilities (both core debt and working capital) are critical to the ongoing viability of the organisation and they should endeavour not to “rock the boat” with financiers. On the other hand they know that their financiers are vested with the responsibility of maximising their own shareholder wealth.
This means that there is an automatic and direct conflict of interest on the part of financiers.
Rule number one, don’t rely on the advice from your finance providers.
Companies that have been burnt by a bank in the past can take this to the extreme of having a total distrust for banks. Recently we were asked to undertake a Funding Review of a mid—sized corporate that had significant exposures to the property market. Having experienced the liquidity crunches of the 70s and 80s where bank lines of credit dried up at the time of facility renewal, the Chairman vowed never again to put all the company’s borrowing eggs in the one basket and as a result, had no fewer than six financiers. The problem was that, via their security, each financier saw only a small part of the empire and as a result the borrowing entity was paying over 1% too much for its funding lines.
The problem remains: How to get the best out of the relationship vis—a—vis costs and service?
They say that you should never go into a negotiation without knowing what the outcome will be. When it comes to negotiating banking costs, never a truer word was said.
Rule number two. Know with a high degree of certainty the outcome of bank negotiations prior to committing to those negotiations.
Ideally this means knowing, from a banker’s perspective, the company’s credit rating. The rating will determine the absolute minimum fees and margins that a major trading b...
