When a company wants access to capital, to borrow money, it usually goes to a bank. This debt could be in form of a loan, or the company could instruct an investment bank to issue debt securities via the capital markets in the form of a bond.
Because investment banks provide a number of debt services – including lending, hedging and underwriting, and make money from doing so, it makes it difficult for them to provide impartial advice to companies on the most appropriate type of funding .
This is where financing advisory teams (which are found at advisory investment banks such as Rothschild) come into play.
These teams actually do more than just advising companies on the best and cheapest way to raise finance: they manage the entire process, reaching out to a range of investment banks and other potential sources of capital that the client may not have a relationship with, running a competitive process and negotiating on their client’s behalf to get the required funding from the most appropriate source on the best possible terms.
Restructuring is an area of debt advisory that focuses on changing the structure of debt that the client already has. This could be by converting some of the debt to equity (where the team would negotiate to give away as little equity as possible), or amending the terms of a loan to avoid an upcoming default, often in return for more interest or one-off fees.
Down to business
We spoke to Andrew Merrett, European Head of Restructuring, and UK co-head of financing advisory at Rothschild
What kind of work do you do?
“As financing advisors to our clients, our job is to know exactly where the global capital markets are at any point in time. We use this knowledge to help them to secure financing on the best possible terms.
“Restructuring is a specific aspect of the financing advisory service we offer. A company will sometimes take on too much debt and will be struggling to pay this or refinance through traditional means.
“In this case the company will sometimes need to cut a deal with its lenders: the borrowing period may need to be extended to give the company more time to pay, or, in some cases, the debt can be converted into equity.
“Alternatively, they may need to find new lenders who are willing to take the debt off the hands of the original lender.
“In other situations the borrower might have to sell off parts of its businesses to pay off its loans, or – in extreme cases – the debt may have to be written off altogether.”
What kind of clients do you act for?
“Our clients are predominantly large corporates; however, we also work with smaller firms, as well as governments and private equity owned businesses.
“Each client will have their own set of needs and objectives. A listed plc. will usually have fairly clear access to capital markets and it will simply be a case of shopping around for the best possible deal.
“However, they may have specific requirements – they may want to hedge against inflation or currency movements for example – and we can help them with this.
“A smaller company may have different needs: they might be debating whether to borrow money from the banks or to pursue a private placement directly with institutions, or a public bond.
“We will outline the various options and advise on what we feel is the best strategy for them.”
Why do they choose Rothschild over your competitors?
“Clients recognise our reputation and experience in this field.
“Our market leadership and deal-flow means that we are in constant communication with the market and that makes us a good judge of borrowing conditions and where prices are headed.
“We are also purely advisory and, unlike other banks in this space, Rothschild doesn’t actually sell any financial securities of its own. We are independent and impartial.
“Because we are an independent advisor, our clients know that they are getting truly impartial advice.”
Why is debt advisory a good starting place for a graduate career?
“It’s hard to top the breadth of exposure you’ll get as a graduate in the Debt Advisory and Restructuring division.
“As an analyst, you will be at the heart of the City; you’ll have prime viewing of capital markets and the many developments taking place day-to-day.
“The types of clients graduates get to work with is also a big selling point. We are a fully international business and we work with organisations of all shapes and sizes, across a range of industries and geographies.
“On the side of the lenders, we work with the full spectrum of financial services providers, from other major investment banks through to hedge funds and private equity.
“It’s an excellent launch pad for learning how the markets operate and it allows graduates to be able to sample different areas of finance early on in their career.”
What are the current big issues in debt advisory?
“Conditions across global capital markets have been relatively benevolent over the past few years. Interest rates have been at extreme lows in many countries and this has made finance relatively easy to come by.
“However, many people are predicting a turn in the business cycle over the coming months, which may result in increased volatility in the markets.
“Some governments, including the US and UK, look set to raise interest rates over the coming months, which will increase the cost of borrowing. These countries are also tailing off their quantitative easing programmes – this may cause lending conditions to tighten further.
“Meanwhile growth in China, Brazil and other emerging markets has slowed considerably in recent months, meaning companies operating in these markets are struggling to access capital.
“The upshot of all this is that many organisations are bringing forward their plans for refinancing: they want to get everything tied up now before conditions take a turn for the worse.