Do you have the financial firepower to fund your future growth?

How strategically managing your capital and debt financing will increase your bargaining power with investors.

Capital and debt financing is on the rise. With it comes a growing interest in financing alternatives like public private partnerships (PPP), European Investment Bank loans, crowd lending, green finance and/or bonds. In today's challenging economy, building your case to obtain funding has grown more complex than ever before, due to the vast variety of financing options, financing instruments and partners.

Banks and investors demand a balanced financial structure that is well documented and based on a solid repayment, cash flow and risk analysis. The COVID-19 crisis only reinforced this trend. Successful (re)financing starts before the need for funding arises. Strategically managing your funding and projects on a regular basis will help you to anticipate financing needs, create the optimum funding structure and give you time to build a robust case for investors or lenders.

Assess your financial fitness

More than a mere review of operations, organisations need to conduct objective assessments of the alignment of their business strategies to their funding needs. Capital and debt financing is a sustainable solution that takes a long-term perspective. It’s a strategy, aligned with your operational business plan, that matches particular financing instruments to both business and investment needs.

Questions you need to ask yourself:

• Is your funding allocated appropriately across projects, functions, divisions, customers and geographies?
• How do you know which funding optimising measures really matter?
• Do you use scenario modelling and other risk assessments to underpin your decisions about funding optimisation?
• Are you able to demonstrate that your business decisions and funding are founded on robust data and reasoned assumptions?

Build a compelling story

By bringing a realistic story to a potential lender or investor you create trust and ensure an easy follow-up of your project going forward. However, looking at the repayment capacity and verifying if risks are properly covered is only part of the story. It’s equally important to enable flexible reactions and robust solutions to changing conditions, so that you can successfully continue and operate your business.

Make sure to:

• Create a clear view on funding needs going forward and drivers of these needs, linked to your strategy.
• Make a plan that in the short term includes potential working capital swings and in the long term looks at covenant management and potential future needs.
• Build in the key drivers and let sensitivities determine the characteristics of the required funding, both in the short and long term.

Keep an eye on the complete financing cycle

Obtaining debt or capital requires a holistic view. This means taking into account the impact of the complete financing cycle. Some key takeaways:

• An authenticated business model that is validated by an independent advisor, combined with insights in the current market conditions for funding, can give you more bargaining power during negotiations with potential lenders.
• Stress test sessions with what-if scenarios help to get and give you comfort about the impact on leverage covenants and repayment capacity in case your business underperforms.
• Building in the opportunity to (re)assess the covenants and pledges, and should it be necessary, reallocate guarantees towards financing needs, gives you more flexibility to react to changing circumstances.
• Raising extra capital or debt has an impact on your balance sheet. This needs to be assessed.
• Currency fluctuations need to be taken into account (FOREX). With hedging you can cover this risk.

Capital allocation strategy and bond fund give ICN financial wings

Real estate developer and investor ICN Group is active in Belgium and Luxembourg. Real estate is a capital-intensive business and is highly cash flow dependent. With several projects in the pipeline, the real estate developer needed significant funding in the upcoming months as well as short-term funding for a specific project.

In the past, ICN financed its projects ad hoc and asset based. EY advised on a funding strategy and restructuring, combined with a plan that focused on both short and long-term solutions. The new financing structure included a bond fund as well as an asset-based solution to finance future projects. The bond fund, a reserved alternative investment fund (RAIF), and a bespoke capital allocation strategy will allow the ICN Group to continue its growth and act fast when new development opportunities arise.

Corporate finance solutions

EY advises advisory corporates, international institutions, private equity, REITS, governments, sovereign wealth funds, private and family businesses, social and educational institutions.

From portfolio review and capital allocation processes to financial planning analytics and decision support, we have the people, analytics and tools to help you better allocate capital. Our debt advisory team helps clients manage their risk/return trade-offs to support them with better decision-making around financing and capital efficiency.