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Viewpoint

March 2015

Read the latest key issues, trends and sector updates impacting the restructuring arena from Deloitte.

Welcome to Viewpoint. This is a quarterly review of the key issues and trends in the restructuring arena.

Oil & Gas - Crude Awakening 

We recently launched our “Crude Awakening” insight, which discusses the factors behind the recent oil price decline and its implications.

Increasing supply from new sources, particularly US shale, whilst OPEC has maintained output to protect market share, combined with weak demand in Europe and slowing growth in China, has led to an excess of supply over demand and a fall in $/bbl. At current prices, new projects in high cost production geographies (US shale, Oil sands, Arctic) are likely to stall and market commentators predict there will be a rebalancing of supply to match a longer term lower price oil environment. However, the length of the cycle and the trajectory of the oil price remain uncertain.

Debbie Young, Partner and Restructuring Services Oil and Gas Lead

“The lower oil price is driving the industry to rebase and opex and capex cuts announced by the supermajors over recent weeks and months show that this process is well underway. This is likely to place pressure across the whole supply chain. However, uncertainty remains over where oil prices will stabilise in the short and medium term. 

Decision making both for financial stakeholders with exposure to the sector and those aiming to opportunistically buy in or consolidate is complicated as there is difficulty in assessing underlying value. In the interim, detailed consideration of the underlying assets and how different price scenarios will affect them will allow stakeholders to understand their options as the price cycle develops over 2015. 

Our oil & gas team consists of analytical, engineering and geological experts and can provide financial and technical support to stakeholders, helping identify and answer the key questions that are likely to impact on returns from stakeholders’ exposures.”

Click here to view the Crude Awakening insight piece

Commercial Refinance 

The Commercial Refinance market is undergoing rapid change. The key message here is that all lenders are keen to lend. Asset based lenders (“ABLs”) have continued to develop their offerings and market share, while UK banks have shored up their balance sheets. With the emergence of challenger banks and new routes to market such as crowd-funding, there is a daunting array of potential funders.  Each lender’s sweet spot for lending appetite, portfolio management and monitoring requirements, not to mention pricing, will vary. This can be a daunting exercise for mid-market businesses that may not have an in-house specialism or focus to assess the options fully.

As the UK economy emerges from recession and our clients are pursuing strategies of growth, access to finance will be a recurrent issue.  Having delivered successful re-financings for a wide range of clients, we recently launched a dedicated Commercial Refinance offering.  This complements our Debt Advisory practice and specifically provides advice and assistance with securing finance for those businesses looking to borrow up to £25m, whatever the source or structure.

Our national team has extensive lending and advisory experience and is continuing to grow. Two new Directors, Shaun Hyland and Alan Hamilton, who joined the firm recently to focus on Commercial Refinance in the South and Scotland respectively, have over 30 years of banking experience between them. Shaun and Alan will work with Ravi Sharma and John Hartigan who cover the North and Midlands regions.

Shaun Hyland, Director, Commercial Refinance Lead in the South 

“Businesses have been putting off strategic improvements to their business such as investing in new facilities or realising some of their investment as the economic conditions haven’t been right. That has now changed. Those looking to renew or increase their facilities in the next 12 months can take advantage of a highly-competitive market.  Opportunities abound at the moment with some intriguing products, such as Non-Recourse and tooling funding, available. By looking at all the options, businesses (especially SMEs), can optimise their approach to the market to get the right deal for the long term.”

Click here for more information about Commercial Refinance

Pensions 

The annual Pension Protection Fund (“PPF”) levy can be a significant cost for businesses supporting defined benefit pension schemes. Recent changes such as the change of insolvency risk score provider/methodology have resulted in large swings in the levy for some schemes.  Certifying contingent assets with the PPF such as guarantees, security or asset backed funding arrangements can be a key component in reducing the levy.  The certification process for the 2015/2016 PPF levy year needs to be completed by 31 March, and has been tightened this year – for example guarantee certifications have to certify a ‘Realisable Recovery’ in a scenario where employer companies are insolvent and other underlying assets typically need to be supported by an insolvency scenario valuation.  This process applies to both new contingent assets and those which were certified in previous years.

Tom Partridge, Director, Corporate Finance Pensions Advisory Lead in London  

“We are seeing a high volume of requests for support with contingent asset certification, indicating many schemes have been late to appreciate the changes to the certification process.  Scheme employers and trustees need to act now in order to optimise the PPF levy – Deloitte’s Corporate Finance Pensions Advisory team brings together considerable experience of PPF requirements with business review, insolvency and valuation expertise.  While time is running short, we have the breadth and capability to assist schemes to respond rapidly and effectively.” 

Is your Scheme ready for certification by 31 March 2015? 

Click here to read about PPF guarantees

Real Estate Predictions 2015 - Bank Regulation beginning to bite 

This report predicts the factors which are likely to affect real estate assets in 2015, and considers their impact on real estate restructuring activity.

Key messages include:

  • AQR has added another €53bn of non-core real estate loans to the existing European stock of c.€350bn. In addition, new forbearance rules coming into force this year should create further pressure on bank lending to over-leveraged property borrowers;
  • We predict these factors will continue to drive restructuring activity – and continue to change the real estate lending landscape;
  • M&A activity will accelerate – especially in the listed (REIT) space and in construction, where cost pressures are driving consolidation of weaker players;
  • Capital and rental returns still have potential to grow, as overseas investment continues to drive demand and UHNW investors increase in importance for the UK market;
  • Serviced offices as a sub-sector is set for continued strong growth;
  • Supermarkets reconfigure  their sales footprint from out-of-town superstores to smaller high street convenience stores;
  • The public sector will continue to review and selectively monetise its real estate portfolio; and
  • Big Data will become an increasingly powerful tool for environmental reporting compliance, causing widespread non-financial reporting metrics to become mainstream for the first time this year.

Christian Ebner, Director and Restructuring Services Real Estate Lead

"Despite continued strong demand for UK real estate as a global asset class we expect to see accelerated deleveraging activity especially from European lenders as a consequence of AQR and the new forbearance rules. Alternative capital providers will benefit from these developments and extend their market share as lenders to UK real estate."

Click here to read what 2015 has in store for Real Estate in the UK

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