Three years have passed since HSBC, one of Europe’s largest banks, announced losses linked to U.S. subprime mortgage defaults. During those three years, we have seen huge losses and asset write-downs, bank failures and hastily arranged sales of some of Wall Street’s biggest names, and a near-total collapse of the credit markets that prompted governments around the globe to intercede.
We know that cash is the lifeblood of business; recent events have amplified this axiom. Over the last few years, we have seen many companies operate with insufficient liquidity to handle shifts in their business or the economy. As the U.S. government attempted to infuse cash into the system to indirectly help these companies, many lenders were using the cash to shore up their own balance sheets. While some companies have cut back on their requests for capital during this time, others have continued with their plans to raise capital in the near future.
We wanted to learn more about the methods some companies are employing to raise needed capital and how other companies can improve their rate of success. This research and resulting report, “Raising capital in the current credit markets,” was undertaken by Financial Executives Research Foundation, Inc. (FERF) in association with Grant Thornton LLP. The results and analysis herein are based on data collected in late 2009 using a brief 14-question online survey of more than 250 financial executives, and on individual interviews with executives of companies that are seeking capital and with investment banking firms, merchant bankers, and economic development organizations that provide or arrange capital.
Executive Summary from a special white paper prepared by Grant Thornton titled “Raising Capital in the Current Credit Markets.
Some key findings of the survey include the following:
• 44 percent of respondent companies attempted to raise capital by renewing existing debt agreements.
• Almost half (48%) of survey participants believe that amounts being lent have decreased.
• Just over half (55%) of respondents feel that interest rates on borrowing have increased, while nearly one quarter (24%) felt they have decreased.
• 66 percent of respondent companies believe that current regulatory reform proposals, including taxing financial transactions, will increase costs and move capital flows overseas.
In order to learn of the obstacles they face, we interviewed financial executives of companies that are seeking capital. To provide insights to help them overcome these obstacles, we also interviewed executives of companies that provide or arrange capital for their clients. While each company’s experience is unique, some consistent themes arose:
• Be aware of what is happening in the credit and equity markets, even if your company is not distressed or seeking immediate capital.
• Enhance the information your company communicates to lenders.
• Be prepared and ensure that your company’s financials are in order.
Click Grant-Thornton-Raising-Capital-May-2010 to read the full report.