5 ways CFOs can maximize access to capital

Over the past few years, companies issued record volumes of debt, and now that interest rates have doubled in the past six months finance teams are becoming nervous. This is understandable for companies with floating-rate debt or significant upcoming maturities. But otherwise, CFOs can find some comfort knowing that interest expense growth will likely lag the increase in rates. A much more critical issue for borrowers is the seeming decline in the availability of capital.

Here are five initiatives for the proactive CFO to consider:

1. Strengthen core operating credit performance and corporate credit rating. Take steps to increase cash flow and reduce debt, improve earnings visibility, and mitigate credit agency concerns to improve the organization’s credit profile.
2. Refinance near-term debt maturities (even at these higher rates). Extend debt maturity towers and create financing runway by refinancing debt to offset the impact of declining liquidity.
3. Maximize and extend bank revolvers and credit facilities. Reinvigorate bank and lender relationships with a focus on credit strength, transparency, and continued development of mutual business interests.
4. Reduce covenant restrictions and create more financial flexibility. Review financial agreements to remove legacy limitations, reduce reporting and compliance triggers, and increase degrees of financial freedom.
5. Develop alternative sources of capital from asset finance to junior capital. Consider alternative applicable financing strategies, such as private debt and equity, to diversify capital resources and expand competitive dynamics.

At the current pace, we expect credit conditions will intensify in the near term. So, most borrowers should stop worrying that interest rates are rising and focus instead on maximizing access to capital.

Adapted from: “5 Ways CFOs Can Maximize Access to Capital”, by Reuben Daniels, founder and CEO of EA Markets, published on CFO News on 02 August 2022.