What's Involved In Refinancing A Home – During the pandemic, government subsidies and private loans have helped ease the financial crisis for companies in Germany, Austria and Switzerland – while also raising overall interest rates from previously high. Consequences for investors and debtor companies because this debt must be large:

· Even without a maturity wall – when thousands of companies will try to repay government aid almost immediately – in the future, some companies with high debt will find it difficult to refinancing.

What's Involved In Refinancing A Home

· The biggest risk will be in the short term, when some companies will have to repay outstanding debt and provide capital to transform large enterprises but may not be able to do so.

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· As the economy improves and companies move away from government subsidies, financial services will shift from banks to other sources of revenue. Private equity funds in particular will play a major role in the upcoming cash flow.

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According to a recent study, many companies in Germany, Austria and Switzerland may have difficulty repaying outstanding debt and providing capital to restructure large enterprises.

Refinancing Questions Answered

Debt among the German, Austrian and Swiss companies, known as DACH, began to increase during the COVID-19 crisis, and then increased as governments provided billions of dollars in public aid during the crisis. pandemic period. The consequences for those with the money and the companies indebted for these debts will be huge, according to the third survey among German-speaking financial reformers. (See “Methodology.”)

Analyzed the financial statements of 1,034 large companies in Germany, Austria and Switzerland (the so-called DACH region) with revenues ranging from 60 million euros per year to more than 100 billion euros per year. We have supplemented this information on debt-to-income ratios with additional research (such as German government aid programs) and tested our findings in restructuring research and recapitalization of DACH. There are 366 experts, accounting for about 30%.

While we don’t foresee a so-called maturity wall – when thousands of companies try to renew government support at the same time – in the near future, some highly indebted companies will soon find themselves in trouble. difficulty in extending this amount. But the biggest risk, for financiers and companies alike, will be in the short term when some companies need to refinance outstanding debt and pay for major changes in operations. business but may not be able to do so.

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The DACH economy was hit hard during the pandemic. For example, the German economy contracted by 5% in 2020. In our research, we looked at a sample of more than 1,000 large companies in the DACH region across all regions. We found that, in 2020, the company’s revenue fell about 7% and its profits – which grew at a rate of 2% per year from 2015 to 2019 – fell about 10%. (See Figure 1.)

The companies most at risk are those in industries that are under the most pressure to change operations and those that will take the longest to recover from the crisis.

Government aid and private loans have helped ease the crisis but have lifted energy totals from very high levels. (See Exhibit 2.) Across all industries, total debt increased about 8% per year from 2015 to 2019 and then about 6% in 2020. This increase combined with a sharp decline in net income in 2020 – a net move, approx. . , from 3.1 times earnings before interest, taxes, depreciation and amortization (EBITDA) to 4.5 times EBITDA and net profit from 2.2 times to 3.2. This creates a large gap between the investment class and the non-investment class, and makes it very difficult to make a profit. Interestingly, cash and cash equivalents increased more than total debt in 2020, up €95 billion compared to 2019. This suggests that, where possible, companies are building up hard reserves rather than using use money.

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We see this working across many industries, although some are impacted more than others. For example, the auto industry was dealing with cost issues related to the transition to electric vehicles even before the pandemic, and mobility has been especially difficult during the crisis. The companies most at risk are those in industries that are under the most pressure to change operations and those that will take the longest to recover from the crisis.

Because banks provided more money to help with the pandemic, bank loans increased 5% in 2020. But other sources of funding fell sharply that year:

Despite many people’s worries, only 15% of the experts we asked believe the DACH region will face a hard wall. On the basis of our analysis, we believe there are three main reasons for this. One reason is that government support is often tied to existing infrastructure or existing funding is supplemented by long-term support. As a result, the 53 billion euro loan issued by German bank KfW Group from the beginning of the pandemic to August 2021 will now mature in several years: 24% will mature at the end of 2024, 20% will mature in 2021. 2025 or 2026 and the majority (56%) will mature in 2027 or later. (See Appendix 3.) The second reason the DACH sector avoids the term wall is that most loans are not large: 70% have an individual value of less than 10 million euros. The third point is that much of the aid is in the form of grants, such as compensation for part-time work, which does not affect business records. In Germany, for example, 60% of aid falls into this category.

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However, sources of pressure for refinancing in the near future still remain. For example, borrowings were already rising before the pandemic suggesting interest rates will likely remain very high – possibly above a 3.0 EBITDA margin – for several years, even if profits recover slightly after 2021. Just These unsustainable loans alone have increased the pressure in the refinancing crisis, which our research suggests will become increasingly common in the short term. And it is unclear whether the reform movement will adopt a more liberal interpretation of the financial sector, even given the current nature of the pandemic. Only 20% of experts strongly believe in a permanent upward shift from the monetary scale. It’s a difficult decision and could put enormous pressure on companies that exceed that threshold.

Another reason for recent difficulties in raising capital comes from companies that were not doing well before the pandemic but received government support. These organizations may face challenges when it comes time to raise capital. We randomly examined 14 companies receiving government aid and found that 10 had EBITDA margins below 10% (six below 3%) before the pandemic. Profits for nine of these companies were down before the pandemic, and six also fell. Indeed, 89% of experts in our survey believe that many companies that received pandemic-related aid were not doing well before the crisis began and that aid has therefore reduced sales. potential revenue. If so, the rate of repayment problems may soon start to increase.

But according to our survey, 80% of respondents believe that a major financial crisis could occur in the short term as the current money supply continues to increase. Some of the issues at play today include government-sponsored epidemic reimbursements and regular reimbursements for non-governmental aid. But one of the most important will be the need to finance various changes, such as digitalization, electrification and sustainability. In fact, 91% of respondents indicated that changes will be moderate or major in the company’s reinvestment decisions. (See Figure 4.)

Liquidity And Refinancing

As the DACH economy recovers and companies withdraw from government support, financial support will shift from banks to other funds. Our forecast for bank earnings growth is 2% per year through 2024. The main reason for the expected return is the nature of the companies trying to make a comeback. We expect that banks will not want to take on these risky loans, especially in sectors that are facing difficult transitions, long post-crisis recovery times or any other risks. any other problem. Additionally, regulators are forcing banks to accelerate the sale of non-performing loans (NPLs), which means banks are less likely to lend to existing customers they is risky.

In this environment, bonds, private loans and to a lesser extent other forms of finance (such as fintech) have recovered, returning to growth trends. In particular, we expect private debt financing to play a significant role in earnings going forward. (Our research shows that 74% of respondents expect that debt will be more important in the next two or three years.) They don’t just live in supermarkets that sell dry flour, which has grown by 50%. % during this period.

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