Corporates troubled by liquid debt markets, says Close Brothers research

The research also showed that whilst a significant number of respondents thought that relationship banking remained important to them, close to 70% now see debt as a commodity, indicating they will go wherever the most competitive pricing takes them.

The research also shows that despite the FTSE-250 recently reaching an all time high, 88% of FTSE-250 finance directors feel they are at a material disadvantage when it comes to pursuing M&A activity, given the ability of private equity backed or privately owned companies to sustain much higher levels of debt, without the requirements of being a listed company.

Contrary to recent market-commentator speculation that the current high levels of liquidity in the UK debt markets is a bubble, 82% of respondents disagree and are firmly of the view that the trend will continue.

The research also revealed that UK mid-market PLC feels debt rather than equity is the preferred source of capital – the mid-market is happy to run with historically high levels of debt – of the FTSE 250 companies questioned there was an average of 4.1X EBITDA with some companies prepared to take that to 8X EBITDA. This is a stark contrast to the average net debt to EBITDA ratio in 2000, which the Close Brothers’ UK mid-cap Gearing Report that year showed as 1.75X.

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