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Clifford Chance

Clifford Chance

Briefings

Scaling the Refinancing Wall

23 January 2012

For many years managing corporate refinancing risk was relatively straightforward. However, that's no longer the case as the refinancing wall looms into view in already challenging market conditions.

Customary options may not be readily available. Sponsors and shareholders face the prospect of owning distressed assets and cash sweeps, or worse, creditor restructuring or enforcement. Creditors, who may be seeking to reduce their balance sheet or recycle capital, may end up trapped in legacy financings long after the anticipated refinancing date.

Understandably, many stakeholders have been waiting for market conditions to improve. But the desire to hold out for a more benign credit environment and preferential debt pricing should be weighed against the risk that, as the peak of the refinancing wall approaches at the same time as regulatory burdens become ever more onerous, debt supply does not match demand. As the volume of refinancings increase over the next few years, creditors may elect, or be forced, to fund on a more selective or opportunistic basis.

Borrowers are currently facing higher credit charges, but this may be offset by the low interest rate environment. Although there are associated costs with early swap termination, pricing for new swaps is expected to rise over time. Against this backdrop, many stakeholders are examining their options. For many, the most attractive remains the amend and extend of their bank facilities. Others are looking at alternative opportunities, evidenced in recent years by the emergence of issuance windows for European high yield and the expected growth of mezzanine and junior debt funding.

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Scaling the Refinancing Wall

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