Proof, not promises, the way to secure restructuring support
Funders expect management to show that difficult decisions are being taken, including the discipline to exit loss-making contracts.
Restructuring, by its very nature, can seem a daunting process. Finance is often needed to fund it but accessing that capital can be challenging. However, there are some steps that businesses can take to make the task more manageable.
“Speed and clarity are critical in any restructuring,” says Ken Tyrrell, business restructuring partner at PwC corporate finance. “Act while the business is stressed, not distressed, and communicate a tight cash picture before lenders or funders lose patience. Then layer solutions to the problem such as a liquidity bridge, balancesheet repair, or both.
“Banks are usually the lowestcost option for viable companies for amendandextend, covenant resets and incremental revolving credit facility (RCF) capacity, but appetite fades with persistent losses or thin security.” There are other routes that can be taken but these come with their own built-in challenges. Asset-based lending is often the next-fastest option after the banks, but success depends on clean receivables and strong controls.
Other options include supplier term extensions, letters of credit or the refinancing and sale-and-leaseback of property. These naturally can often come with onerous terms for the business seeking refinancing.
Given the risks involved, a company that is stressed or in distress must work to make itself attractive to potential funders.
“Funders and banks back restructurings when the core business is durable and cash is controllable,” says Tyrell. “Positive markers include clear evidence of demand such as repeat customers or a tangible order book, unit economics that generate cash onceoffs, [and that] excess debts are addressed, along with a practically costed plan.” The credibility of the people involved, especially those in management, is crucial, as it is quite easy for funders to spot issues and turn away from investing.
Red flags such as overly optimistic forecasting, weak controls and poor data quality can all scupper a restructuring deal. Similarly, arrears with Revenue such as unpaid PAYE or PRSI, along with substantial director loans, can undermine trust and scare off funders.
“By size, expectations differ but principles hold. SMEs win support with cash visibility and basic discipline. Midmarket companies are expected to run a professional process and be diligenceready,” says Tyrell.
“Large corporates need clear stakeholder alignment, across the board, lenders and bondholders, and a coherent path with credible milestones. Lead with proof, not promises. One page of cash and milestones beats a glossy pitch.” Management can play a big role in improving a company’s chances of accessing funding for restructuring.
“Funders expect management to show the underlying business is trading as well as it can and that difficult decisions are being taken. That means having a visible grip on cash and margins, a plan to protect revenue, and the discipline to exit lossmaking contracts, fix or close underperforming units, and rightsize overhead quickly,” says Tyrell.
“In my experience, steady, practical execution that preserves liquidity, prioritises customers and critical suppliers, and demonstrates momentum through actions, wins confidence fastest.” The good news is that access to restructuring finance has never been better in Ireland. One of the knock-on effects of the global financial crisis was that international credit funds and investors focused on restructuring became established in Ireland.
That doesn’t mean it’s easy. The demands of those providing the finance are quite high.
“Lenders and investors want clearer security, stronger governance and straightforward structures. Expect staged funding tied to milestones, more frequent reporting and tighter covenants,” says Tyrell.
“In practice, that often means shortterm liquidity lines and term loans alongside assetbased facilities; where leverage is too high, a modest equity topup helps reset the balance sheet.” Still, he expects activity in this space to increase substantially, with more businesses seeking and, crucially, getting restructuring finance.
“Over the next 12–18 months, activity should rise from a low base. Domestic pressures, such as refinancing needs, pockets of realestate stress, and the unwind of pandemic supports and warehoused liabilities will meet a tougher global backdrop, with slower growth in the Eurozone and UK.
“Added to this is stickier inflation, geopolitical friction and rising sovereigndebt burdens that keep yields and bank funding costs elevated. That mix narrows refinancing windows and makes risk pricing more selective.” It’s not pretty but it is manageable for those willing to put the effort into making a restructuring plan work.
“Practically, incumbents will stay constructive but firmer on price, covenants, equity support and information rights; alternative capital will back credible plans with clear milestones and strong preparation,” Tyrell concludes.
