Last week, a Houlihan Lokey team helped a premier corporate client raise a significant amount of additional debt capital in order to be better prepared during the coming months. We suspect there will be many more such transactions during the course of this spring.
These are unprecedented times, and no one can accurately predict the full extent of the impact the COVID-19 crisis will ultimately have on the financial well-being of businesses. However, one thing is clear—the prognoses of companies can change incredibly quickly. Therefore, ensuring your organization has the liquidity it needs to weather these worst of storms is among the single most important actions company directors can take. Fortunately, management teams and the boards they report to can take several important steps today.
First, you need to quickly determine, as best you can, what the business needs really are and, more importantly, what they could become. A CFO or treasurer’s new “base case” for estimating future financial results has to reflect that (i) the economic impact of the measures required to slow or stop the virus could deal a severe blow to their revenues, and (ii) that this adverse impact could go on for several months.
This exercise will show what the company’s need for additional liquidity might be. Many businesses have the untapped credit lines needed to fill their potential liquidity need, but we are confident at least as many do not.
For those companies that do not have adequate excess liquidity to carry them through the crisis, management essentially has four key areas to look to for support:
Securing additional liquidity has much more upside than downside. If it turns out a company doesn’t end up needing all the additional capital it raised, it should simply be seen as one of the best insurance policies ever taken out.
Patrick Schoennagel Managing Director Anthony Forshaw Head of Capital Markets, Europe
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