Squeezed by leverage

As a legacy of the private equity boom an increasing number of companies are now finding their activities largely targeted to satisfying their repayment obligations to their bankers. Companies are finding their growth restricted as money which is needed for new projects is swallowed up in servicing debt.

 

A case in point is Birds Eye, Europe’s largest frozen food producer. Birds Eye has had to pay about £5 million in penalty charges to win breathing space from its lenders. Total bank borrowings now stand at Euro 1.8 billion with a further Euro 1 billion owed to investors in the form of loan notes.

 

Banks that formerly were willing to take a more lenient attitude and renegotiate loans are playing by much harder rules.

 

As companies increasingly find their ability to borrow restricted, they have to revisit payment terms with their customers. It becomes a vicious circle from which very few are immune.

 

The key is to make the most of available cash resources which inevitably leads to some hard commercial decisions. Late payers are a luxury that no company can afford in this climate. Stock must be turned as efficiently as possible.

 

Those who either will not or cannot adapt to the demands of today’s business will join the growing list of casualties.