Non-bank lenders have been a solution for many SMEs which had been left financially devastated by Covid-19. Several lenders were able to offer lending under the Government lending schemes and many accepted extended payment holidays where possible.
The challenge for SME lenders is threefold:
What happens when Covid-19 support measures unwind? As businesses open after lockdowns, depleted liquidity reserves may be insufficient to replenish stocks and repay deferred tax and Covid-19 related lending obligations. Therefore, lenders will continue to closely monitor the quality their portfolios, including how secure the collateral is. This is likely to impact both provisioning and the ability to service the lenders own financing obligations.
Supply chains are being heavily impacted, resulting in shortages of components and increased lead times and prices for the delivery of goods. This impacts borrowers’ working capital and cash conversion cycles and as such the quality of borrower debtor books deteriorates impacting any ABL or Invoice Financing facility.
There is ample liquidity in the market, and many lenders are struggling to deploy capital sooner than their peers. We are seeing less due diligence being completed which runs risks for lenders who don’t foresee significant risks.
The bank’s parent company wished to exit the market. After an unsuccessful share sale, alternative options to be investigated.
Business comprised of personal unsecured lending, automotive lending, e-money cards and deposits.
We led the assessment of the exit options under a range of scenarios including the sale of parts of the business the and wind down or share sale of the remainder. We also advised on the retention payments, supported the wind down and identified the stress test parameters for modelling the liquidity and regulatory capital.
There were several international e-money books with some AML issues and blocked accounts which needed specific management through liquidation.
We were appointed to advise the Board and provide assistance as and when required through the implementation and are now liquidators of the residual entity.
NCWO Analysis
‘No creditor worse off’ (“NCWO”) analysis on the group’s UK banking subsidiary.
Arrived at an indicative assessment of potential recoveries for the bank’s creditors.
We evaluated implications for the wider group and considered the likely timeframe and strategy for an insolvent wind down of the balance sheet.
The balance sheet included £50bn of assets incorporating loans and advances to customers, securities, derivatives and corporate loans.
We also considered the liquidity of the bank and group.
