>With Britain expected to slip into recession in the coming months, interest rates could push less healthy businesses into bankruptcy.
>Companies have been scrambling to reduce their exposure, paying down debt with earnings when they can and looking for investors where they cannot. Carmaker Aston Martin Lagonda last month allowed investors – including Saudi Arabia’s controversial sovereign wealth fund – to buy shares at a deep discount in order to reduce what chair Lawrence Stroll said were crippling debt costs.
>For companies still hoping to refinance, rising interest rates will make things even harder. They include GFG Alliance, the group of metals businesses controlled by Sanjeev Gupta. Gupta has been trying to refinance the businesses for more than 18 months, which has raised concerns for thousands of steelmaking jobs in Rotherham and Stocksbridge in South Yorkshire, and elsewhere.
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>Richard Etheridge, associate managing director at Moody’s, said companies in the UK and Europe faced high indebtedness and difficult capital markets. “Those who need to refinance will be most at risk given the step-up in funding costs,” he said.
>Economists have long warned about “zombie firms” being kept alive by debt while paying low interest rates. They could soon face a reckoning. Ratings agencies focus on bigger companies, which are able to issue bonds, but there are concerns about the impact of higher borrowing costs on smaller firms as well.
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>With Britain expected to slip into recession in the coming months, interest rates could push less healthy businesses into bankruptcy.
>Companies have been scrambling to reduce their exposure, paying down debt with earnings when they can and looking for investors where they cannot. Carmaker Aston Martin Lagonda last month allowed investors – including Saudi Arabia’s controversial sovereign wealth fund – to buy shares at a deep discount in order to reduce what chair Lawrence Stroll said were crippling debt costs.
>For companies still hoping to refinance, rising interest rates will make things even harder. They include GFG Alliance, the group of metals businesses controlled by Sanjeev Gupta. Gupta has been trying to refinance the businesses for more than 18 months, which has raised concerns for thousands of steelmaking jobs in Rotherham and Stocksbridge in South Yorkshire, and elsewhere.
>
>Richard Etheridge, associate managing director at Moody’s, said companies in the UK and Europe faced high indebtedness and difficult capital markets. “Those who need to refinance will be most at risk given the step-up in funding costs,” he said.
>Economists have long warned about “zombie firms” being kept alive by debt while paying low interest rates. They could soon face a reckoning. Ratings agencies focus on bigger companies, which are able to issue bonds, but there are concerns about the impact of higher borrowing costs on smaller firms as well.
*The Observer* 29 October 2022