The Plight of the Zombie Company
Our Head of Accounts, Colin Crowdy, talks about financing, pre-packs and the perils of the ‘Corporate Undead’….
How Companies are financed affects every day of our working lives at Harris Lamb; whether doing deals, offering investments or carrying out research then the issues of the ‘pre-pack’ and the concept of Zombie Companies are increasingly affecting strategic property thinking. The rumours that circulate of Companies potentially entering a pre-pack is as damaging as anything, so what is the real story?
A recent article in The Sunday Times entitled “Day of the Zombie” revealed some interesting facts and figures. The article highlighted the plight of a growing rank of UK businesses referred to as “the corporate undead”. A number of household names were identified as “zombie companies trapped by debts taken on in the carefree, expansionist days of the credit boom”. Companies identified included Yell, Premier Foods, Punch Taverns, Thomas Cook and Travelodge.
The article highlighted the plight of a number of these companies, now saddled with debt which frankly they will be unlikely to ever repay. As banks are required by new regulations to ramp up their cash reserves, they are unable to continue to extend loan agreements in the hope that matters will improve.
Martin Gudgeon, head of restructuring at Blackstone, said “there is a perfect storm of flat growth, bank deleveraging and impending maturities that it is forcing over-leveraged companies to properly consider restructuring options instead of extending maturities again. Amending terms without improving the credit simply puts off the inevitable. The inevitable is here now”.
Over the next 4 years British companies owned by private equity firms must repay or refinance £110 billion of debt according to the Linklaters, the law firm. This is twice the amount coming due in Germany or France.
In order to resolve this debt crisis, firms are left with few options. Whilst American vulture firms are taking the opportunity to circle a number of these wounded beasts, in the words of The Sunday Times “ the vultures are here, and they smell blood”. Significant debt reduction programmes are therefore in place with finance houses buying deeply discounted stock.
The other option open to companies saddled with such excessive amounts of debt accrued in the boom times is the prepack. In our industry, we have seen two of our sizable PLC competitors have to resort to this measure in order to preserve their businesses, as a result of being burdened with significant debt . As a prudently run and financially secure business, I am pleased to say that Harris Lamb will not be resorting to any such measures in the foreseeable future!
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