Category: Debt

Thoughts in advance of the 2023 Autumn Statement

Posted on by Derval Rooney

For many years Autumn Statements did not create much interest outside of economic and political circles. They were more like midterm report cards that would signpost how things were going in the economy, with updates on public spending and borrowing. Since 2018 the plan was for the Budget to take place in the Autumn and then there would be an economic update in the spring to be called the Spring Statement. The theory was to avoid two fiscal events in the same year and to enable Parliament to have more time to debate and review draft fiscal legislation. However, since 2018, the reality has been much less clear cut with a plethora of ad hoc fiscal statements and indeed last year a budget statement reversal after the chaos caused by the Truss/Kwarteng budget statement in September 2022.

On 22nd November 2023 Jeremy Hunt will present his Autumn Statement to Parliament. He will no doubt be relieved that he has survived the recent cabinet reshuffle, but that relief will be significantly tempered by the thought of an election which must take place within the next 15 months. The current opinion polls, the state of the UK and global economies and the fact that the current Government has put in place fiscal measures that have led to the highest tax burden in the UK since the end of the Second World War will mean that any thoughts of job security may be temporary.

So, will the Chancellor make any surprise announcements at the Autumn Statement in a bid to both stimulate the economy and start to reverse the trends in the polls? The general thinking is that he has virtually no room to manoeuvre at the minute. Whilst tax receipts have been extremely buoyant in the last six months due partly to the better-than-expected economic growth but mainly to the impact of the increased tax burden, the impact of inflation on public sector costs and the huge increase in government borrowing interest costs (rising to over £100bn this year) will mean there is virtually nothing in the kitty for any big tax give-aways.

With that in mind, it is always worth looking at what might be included in the statement (or maybe even in the Spring Budget):

Corporation tax rates went from 19% to 25% from 1st April this year (despite the Truss/Kwarteng attempt to reverse this last year). The higher rates will no doubt impact on foreign direct investment, and it may be too early to tell whether the higher rate will result in a higher tax yield. Whilst the natural home for a Conservative Chancellor would be to lower corporation tax rates, one must remember that companies don’t vote and we are too far into the current election cycle for a cut in corporation tax rates to have any significant impact in time for the next election.

Inheritance Tax is regarded as the most hated tax in the UK — effectively paying tax on wealth that has already been subject to income tax and capital gains tax. There were some hints earlier this year that this tax may be subject to a root and branch review and that it would be adjusted so as to take most people out of the inheritance tax net, leaving only the wealthiest subject to it. However, inheritance tax is actually not paid by the majority of people and its dislike is more often about its perceived impact rather than its real impact. Whilst the cost of making some significant changes would not be enormous, it would be seen as handing a tax break to the wealthy at a time of austerity and thus it may not have the electoral impact that would make it worthwhile.

Stamp Duty Land Tax has been around for 20 years now and the rate has steadily increased over that time. There may be merit in a reduction in the rate at the bottom end of the property ladder to not only help stimulate the struggling housing sector but also to encourage younger people to get onto the property ladder. Having said that, with the base interest rates now north of 5% after a decade of interest rates closer to 1%, the reduction in SDLT rates may not give the necessary short term boost to first time buyers.

It is highly unlikely we will see any reduction to income tax rates or national insurance rates, the cost of such reductions would be just too great and any such rate cuts at this time could spark unwelcome movements in the UK government bond market similar to those seen last autumn.

Mr Hunt is between a ‘high tax rock’ and a ‘looming election hard place’. It is hard to see him having any wriggle room just now. However, the November Statement is not quite the last chance saloon, that will be the Budget Statement next spring. I suspect the Chancellor and his government will be keeping their fingers crossed that tax receipts will stay buoyant, global economic factors will enable inflation to fall back further and that interest rates will ease back below 5%. They say a week is a long time in politics but the question is will four months be long enough for the economy to provide a window of opportunity for the Chancellor? Watch this space.

Time to plan for an MVL?

Posted on by Rory Moynagh

Written by Jamie Callaghan

With the Chancellor’s Spring statement fast approaching, those business owners contemplating retiring or exiting their business will no doubt be considering the possible implications for them should the Government announce changes to the Capital Gains Tax (‘CGT’) regime. 

As the Government continues to deal with the aftermath of unprecedented borrowing to support the economy during the pandemic, some consider that CGT could be next on the Chancellors hit-list to raise funds. This could be achieved through the removal of business asset disposal relief (‘BADR’) or, as recommended by the Office of Tax Simplification, increasing the CGT tax rate. 

Business owners can mitigate their risk now by discussing a Members’ Voluntary Liquidation (‘MVL’) with an Insolvency Practitioner to explore whether it is an option suitable for them. 

An MVL is an option for solvent companies wishing to wind down their activities and allows for assets to be distributed in a tax-efficient manner, whilst also giving directors certainty given the finality of the liquidation process. Subject to certain conditions, distributions made in an MVL can qualify as capital distributions and business owners can avail of BADR with a tax rate of 10%. At current rates, this relief can save business owners up to £100,000 in CGT. 

An MVL is only an option for solvent companies meaning that the company must hold enough assets to be able to settle all liabilities and interest in full, normally within 12 months. Due to the ability under company law to hold members’ meetings at short notice, companies can often be placed into an MVL within a couple of days. 

While no-one really knows what the Chancellor’s plans are for CGT come 23rd March and beyond, business owners should always keep one eye on their exit strategy and plan accordingly. This will ensure their company’s activities are wound down in the most efficient possible manner.

A Squash and a ‘Fiscal’ Squeeze

Posted on by Rory Moynagh

Written by Rory Moynagh

If there has one benefit from the past 2 years, it is undoubtedly the opportunity to spend more of those precious moments with our kids. Whether that be the school run, homework or generally just being around more, the pandemic has afforded people the opportunity to reset and perhaps realign those priorities in life.

I’m sure like many, after an excitable day, our kids like to unwind before bedtime with a book.

During a recent reading of Julia Donaldson’s “A Squash and a Squeeze”, I’m sorry to admit, but my mind started to wander as I was reciting the words (almost by memory now at this stage!).

With the increase in hybrid working, I’m sure many might relate to the challenges of space being at a premium in our households at times, however I then began to consider the current fiscal squeeze facing many households.

Fiscal Squeeze

Whether it be rising heating bills, electricity costs, shopping bills, credit cards or fuel costs, the squeeze on household income is very much real.

Coupled with future increases in National Insurance Contributions from 6th April 2022 as well as last week’s announcement of future increases in local property rates, the financial pressure facing households continues to increase.

It was recently reported by the Office for National Statistics (“ONS”) that 76% of people were paying more for food, energy and petrol in the 10 days 3rd February 2022 to 13th February 2022. This was an increase from 69% for the period 19th January 2022 to 30 January 2022. Furthermore, consumer prices also rose by 5.5% in the 12 months to January 2022, the highest since March 1992 (7.1%).

The challenges presented by such inflation cannot be underestimated.

Whilst the Bank of England have attempted to curb the rising levels of inflation by increasing interest rates earlier this month, this will also have an additional knock-on effect on those with tracker or variable rate mortgages, further tightening the squeeze facing many household incomes.

Not Just Households, Businesses Too

Of course, this pressure is not limited to purely households, with many businesses also facing rising costs.

Inflation, Brexit and wider economic and political issues have resulted in increased labour, transport and material costs. The resulting impact on margins has been considerable for many businesses, and whilst many have publicly stated that every effort is being made to avoid passing such cost increases on to the consumer, the above ONS statistics unfortunately confirm the reality that such costs are already being passed on and will likely continue to be in the months ahead.

Plan, Plan, Plan

For both consumers and businesses, the only response to such rising costs is to plan accordingly.

Households should start, or if they already have one, update, their household budget. This will not only help prioritise essential expenditure and manage outgoings, but also highlight any potential areas of concern. Once highlighted, any such problems can then be addressed at an early stage before they become too problematic.

Similarly, businesses should review their business plan and update their financial projections accordingly.

Owners should perform extensive sensitivity analysis under various scenarios and take time to strategise regarding both the pressures currently being faced and the future direction of the business as a result.

Again, early phase planning and review, will help businesses identify any funding gaps or financial pressures, which can then be discussed with stakeholders, banks, funders and / or creditors.

What is important to note however is that no matter how big the problem may seem, there is always professional assistance available to help work through the issues.

Advice

Seeking the assistance of professional advisors to review and critique a household budget, or a business’ operational, financial and strategic plan, could provide the very solution to the current pressures being faced.

There are solutions out there that can provide a chink of light in even the bleakest of situations. What is required is early engagement to identify and address the issue, and a focused and tailored approach to its resolution.

Whilst the past few years have presented their challenges, we all must recognise of how far we have come and what we have all been through. Of course, there will be further challenges ahead and we are all aware that the unprecedented level of Government support during the pandemic will have come at a cost.

However, if we all face this current period with the same approach and determination that we have recently shown, people and businesses can come through this and be in a position to take advantage of future opportunities that present themselves.

The Psychology of Debt: Post Pandemic Impact

Posted on by Derval Rooney

Written by Fiona Elwood

As we begin 2022, it is widely reported that rising living costs are having a financial, emotional and physical impact upon an ever-increasing percentage of the population. With National Insurance set to increase in March and the UK as a whole beginning to feel post pandemic inflationary pressures, one of the UK’s leading Debt Charities, StepChange, have confirmed that one in three people in the UK are struggling to keep up with bills (interestingly this is double the pre-pandemic number). Advice NI, another debt advice charity, has also recently issued a call to ‘encourage everyone to take a look at their finances now to help deal with what’s coming over the next year’. 

In my role as a debt advisory professional, we often meet with people struggling with their finances and in nearly every case the emotional (and physical) side effects of their financial difficulties are clear for us to see.

Whilst most households in Northern Ireland will have mortgages, car loans, personal loans, credit cards along with other essential monthly financial obligations such as childcare costs, It’s important to consider that debt impacts different people in different ways.  One person may suffer severe anxiety owing £1,000 on a credit card whilst another person may consider a credit card bill of ten times that, normal. Debt and financial pressures are not a new issue, but the effects of the pandemic have shone a light on the fact that any amount of debt can have a serious mental health impact. 

The commonly accepted emotional effects of debt include: Depression and Anxiety, Resentment, Denial, Stress, Anger, Frustration, Regret, Shame, Embarrassment and Fear. A recent study by Queen’s University Belfast on the Impact of debt and financial stress on health in Northern Irish households outlined that “neither the size of the debt, the type of debt nor the number of different lenders used affect health whereas the subjective experience of feeling financially stressed has a robust relationship with most aspects of health. In particular, financial stress negatively affects self-care problems, problems with performing usual activities, experiencing pain and feeling anxious or depressed”.

The key advice around resolving financial difficulties is to seek professional help.  When the financial problem is addressed and the appropriate solution is determined and implemented people will often describe more positive feelings such as relief, freedom and accomplishment. The age old saying of a problem shared is a problem halved has never been more true.

We often witness that when an individual begins a process such as bankruptcy or Individual Voluntary Arrangement to resolve the issue, there is a clear sense of relief experienced by the person and it is notably visible. Many of our clients describe the feeling of having a weight lifted from around their shoulders and many describe the day they accept the issue and seek help as being the first day of the rest of their lives. The role of a debt adviser is not the most glamorous of occupations but the ability to make a positive impact on someone’s mental health does make it all worthwhile.

Anyone affected by debt should seek professional advice and also avail of debt counselling to help deal with the mental health impact. StepChange, Advice NI or Christians Against Poverty are just a few of the amazing debt charities providing fantastic support in this area and their work (in an area that often remains unspoken about) should not go unnoticed.

https://www.stepchange.org/

https://capuk.org/

https://www.adviceni.net/

UK & RoI H1 M&A League Tables

Posted on by Rory Moynagh

With the publication of the latest Experian M&A League Tables, we are very pleased to report that our Deal Advisory team in Northern Ireland has maintained its position as the leading corporate finance advisor in the region, closing nine deals in the first half of the year.

Our Scottish team continued its strong start to the year, closing seven transactions throughout H1.

HNH-Deal-Advisory-H1-2021-League-TablesDownload

Debt Advisory Case Study

Posted on by Rory Moynagh

A Debt Advisory team, led by Bruce Walker recently advised Athru Whiskey on a £15m ABL fundraise from PNC. This is the fourth funding round we have advised on in the whisky/whiskey sector in the past 12 months and the first involving an Irish whiskey.

Of particular note is that the collateral available to the lender in this case was primarily new make spirit; hitherto, some lenders had been reluctant to fund the maturation period for new make spirit and we therefore view this as a landmark transaction, in particular for the growing Irish whiskey sector.

For more details, please contact Bruce Walker

UK & RoI Q1 M&A League Tables

Posted on by Rory Moynagh

We are delighted to see the efforts of our deal advisory teams in NI and Scotland recognised by their strong showings in the Experian UK & RoI M&A League Tables for Q1 2021. Our NI team was the most active in the country, completing six transactions in the quarter, while our Scottish team narrowly missed out on top spot, closing three deals in the period.

Northern Ireland Rankings

Scotland Rankings

Deal Advisory Openings

Posted on by Rory Moynagh

Due to the buoyant M&A market and with a strong and growing pipeline for FY22, we are seeking to recruit into our Deal Advisory team.

  • – Assistant Manager/ Manager ideally with lead advisory or FDD experience
  • – Chartered Accountant with 2+ years PQE
  • – Based in our Belfast office

For more detailed information on the opportunities, or to submit a CV, please contact us via careers@hnhgroup.co.uk

HNH Secures £2.7m Growth Capital Investment for Quorum Cyber

Posted on by Rory Moynagh

HNH’s Scottish team uses its expertise to support Edinburgh cyber security company

Despite challenging economic conditions, boutique corporate finance specialists HNH have helped Quorum Cyber Security Limited secure growth capital investment to scale its business internationally.

Led by HNH director Neal Allen, the Scottish arm of the Belfast-based multi-disciplinary financial advisory firm secured the £2.7m investment from Maven Capital Partners through its VCTs, alongside the Scottish Investment Bank, which will allow the Edinburgh-headquartered cyber security and data confidence services company to scale up.

In a sign of the resilience of the Scottish tech sector and the appetite for investment in ambitious Scottish businesses, the growth capital deal was instigated by Quorum Cyber’s managing director Federico Charosky, who has a 40% stake in the business.

With a turnover of £2.7m and a team of 25 operating from Edinburgh, Quorum Cyber provides a professional and managed security services for UK and international clients including a fully managed detect and response capability via the company’s Microsoft Azure Sentinel Security Operations Centre (SOC). Charosky will use the growth capital to further scale the business, investing in sales and marketing resource, as well as product innovation to ensure clients can confidentially operate within an increasingly hostile cybersecurity environment.

Allen and the HNH team, which specialises in advising SMEs and entrepreneurs on M&A and growth capital activity, spent several months working with Quorum Cyber to secure the most appropriate investment solution. Having identified several potential investors among its extensive network, HNH secured the investment from Maven Capital, one of the UK’s most active private equity houses.

Allen, director – deal advisory at HNH, said: “While Covid-19 and Brexit have created a challenging financial climate, this growth capital investment demonstrates that there is appetite for growth and investment in Scottish business. It was very encouraging that there was a lot of interest among Scottish based private equity/venture capital funds and we’re delighted to have facilitated this for Quorum Cyber. The team at Maven Capital Partners led by David Millroy were very receptive from the start and we know that Maven is the right home for this business as it continues to grow its client base around the world.”

Charosky said: “Working with HNH and Maven to create the deal has been a fantastic experience. This deal will enable Quorum Cyber to continue growing in a sustainable way, ensuring we continue to exceed customer expectations, while protecting the amazing culture we’ve created.”

Millroy, a partner at Maven Capital Partners, said: “We are delighted to be leading the investment in Quorum Cyber and look forward to being part of its growth in the years to come.  The senior team have already created a strong business and there is significant opportunity to scale operations globally, with further expansion already underway in the Middle East, Australia, South Korea, and North America.”

The Edinburgh office of HNH opened in April 2019. In March this year, HNH’s Edinburgh team secured a £30 million asset-based lending package for The GlenAllachie Distillers Co from Clydesdale Bank. Other clients have been drawn from food and drink, manufacturing, building products, business services and transport sectors.

MBM Commercial and Chiene + Tait LLP provided legal and tax advice respectively to Quorum

COVID-19: Implications for Financing & M&A

Posted on by Rory Moynagh

Deal Advisory director Neal Allen recently gave a presentation to ICAEW members in Scotland on the implications of COVID-19 on the outlook for fundraising and M&A activity. A copy of the presentation is available to download via the following link

COVID-19-Short-Term-Financial-ImplicationsDownload
  • Neal Allen
  • Director – Deal Advisory
  • neal@hnhgroup.co.uk
  • 07876 475783

GlenAllachie Distillers secures £30m loan from Clydesdale Bank

Posted on by Rory Moynagh

The GlenAllachie Distillers Co. Limited has secured a £30 million asset-based lending package from Clydesdale Bank, thanks to support from the new Scottish arm of Belfast-based finance specialists HNH.

The award-winning whisky company appointed Bruce Walker, director of HNH’s Edinburgh team, to lead the refinancing exercise. The Scottish office of HNH was established last year to advise SMEs and family-owned firms during mergers & acquisitions, debt and transaction services.

HNH advised GlenAllachie on securing an inventory only asset-based debt facility on a committed basis for a four-year period on significantly improved terms. Clydesdale Bank Plc was selected to provide the facility on a bilateral basis following a competitive tendering process, which was developed and manged by HNH.

GlenAllachie, winners of the Distillery of the Year Award at The Scottish Whisky Awards, will use the facility to fund working capital and capital expenditure as it continues to develop its brand around the world.

The GlenAllachie distillery, which is located near Aberlour in the heart of the world-renowned Speyside region, and a significant volume of mature whisky was bought from Chivas by Billy Walker and his team in 2017.

The business has quickly earned a reputation as a producer of premium single malt whisky. Its award-winning current products include GlenAllachie’s core range of aged single malts and the richly peated blended malt, MacNair’s Lum Reek. The White Heather brand is also owned by GlenAllachie, and will be relaunched in May of this year.

Billy Walker, the managing director of GlenAllachie, said: “This new debt facility will enable us to continue our journey at the pace we want and further develop GlenAllachie as a premium single malt brand around the world.”

Bruce Walker from HNH, added: “This deal is a great result for GlenAllachie, and the outcome of a competitive process led locally by the HNH team. We were delighted to work with such a high-quality asset with an outstanding management team with a crystal clear strategic vision. It was also good to work again with Clydesdale Bank Plc who were able to deliver a compelling proposal based on their clear understanding of the sector and strong existing relationship with the GlenAllachie team. Appetite for the credit was strong reflecting the strength of both the business and the whisky market more widely.”

Alan Gilchrist, the finance director of GlenAllachie, said: “HNH’s clear understanding of the debt markets, ABL product and current lender appetite was key in securing our new facilities in the required timeframe. We were very pleased with the way Bruce and Fiona King of HNH managed the process and left us to continue running the business. The input we received from HNH was invaluable in securing our deal. Asset-based lending is ideal for us as it provides highly flexible funds secured against our appreciating whisky stocks.

“Clydesdale Bank Plc demonstrated an assured and mature approach to the deal process. They maintained momentum to ensure delivery to timetable and a deep knowledge of the Scotch whisky sector to create a straightforward solution from a clear requirement.”

David Hunter, director, asset based lending with Clydesdale Bank Plc, Glasgow, commented: “We are looking forward to working with the management team at GlenAllachie and are delighted to be able support them through such an exciting stage of their business.”

Debt funding covenants – What you need to know

Posted on by Rory Moynagh

Fiona King HNH
Fiona King, Debt Covenants: What you need to know

What is a Debt Covenant?

A Debt Covenant is simply an agreement made with your funder to adhere to certain financial and operational measures until the debt is repaid. They allow your funder to monitor its investment in your business and are set out in your funding agreement.

In understanding funding covenants, it is important that business owners know what to look out for in order to assess what impact they may have.

The implications of triggering a funding covenant can range from an uncomfortable conversation with your funder, a fee becoming payable or a renegotiation of terms in full or part. At HNH, our debt funding experts work with clients and funders to ensure that covenants strike the balance of allowing the funder to monitor its investment whilst not restricting the ability of the management team to run the business effectively.

Debt covenants typically fall into 3 categories:

  1. Financial

Your funder is focused here on the ability of the business to continue to service debt. As such, covenants are designed to give an early warning indicator that a business may struggle to service debt in the future.

Financial covenants tend to measure key metrics such as cash generation available for debt reduction (sometimes called EBITDA – Earnings before Interest Tax and Depreciation, adjusted for business specific items such as promoter drawings and working capital).

What to look out for:

  • Ensure the covenant has sufficient headroom to allow normal fluctuations in activity;
  • Timing of measurement – especially if you have a cyclical or seasonal business. 

  1. Information provision

This usually relates to the provision of financial information, typically audited financial statements and management accounts but can also include business specific items such as debtors’ ledgers or stock information.

What to look out for:

  • Format, frequency and deadline for submission – Do you prepare the information requested as a matter of course or will you have to employ someone to do it (and hence incur a fee)? If you outsource the preparation, will it be available within the covenanted 30 / 60 / 90 days after period end?

  1. Restrictive

This category contains covenants that are designed to protect your funder from a change in the risk profile of the business, unexpected calls on cash or diminution of assets.

Restrictive covenants typically relate to: dividends, drawings, capital expenditure, changes in shareholding, raising additional debt, providing security to another funder, making loans to third parties or directors’ remuneration.

What to look out for:

  • Restrictive covenants should not prevent the normal running of the business. It is therefore critical at the outset that provision is made within the funding covenants to for example, pay a certain level of dividend or permit capital expenditure, if that is what the business needs to do to continue its normal operation.
  • Restrictive covenants should also not penalise or discourage out-performance. For example, if covenants include a directors’ remuneration cap and the business wishes to reward employees for out-performance, it is important that provision is made within the funding documentation to permit this.

When selecting the most appropriate debt funding partner, it is therefore imperative that covenants and specifically the extent to which they impact upon your business is given equal priority to pricing.