Funding fears for the region's smaller firms

The combined refinancing requirements of 20 of the region's biggest and most powerful businesses are revealed in detailed analysis of annual reports carried out by PricewaterhouseCoopers on behalf of the Yorkshire Post.

The so-called "maturity wall" stands at 1.8bn next year and will rise to 2.4bn in 2012 before returning to 1.8bn in 2013.

Yorkshire companies listed on the Aim market – of which an estimated 70 per cent are loss-making – must refinance a further 330m over the same period.

Most of the debt facilities were agreed before the credit crunch three years ago. Many foreign banks have since withdrawn from the Yorkshire market while UK lenders are reducing their exposure to troubled sectors.

Major UK banks themselves need to refinance or replace up to 800bn by the end of 2012, the Bank of England said earlier in the summer.

Many bigger companies will be able to refinance their borrowings with marginal increases in cost, but smaller businesses, particularly those that are heavily geared, are warned that they will face difficulties.

Martin Allison, who heads PwC's debt advisory practice in Yorkshire, said: "Fundraising for some of the guys I don't think is going to be an issue. There are some really good covenants where I don't believe their existing lenders or potential new lenders are going to have a problem."

He added: "The area I do see stress is where the capital structures... were set on the previous paradigm of high leverage with accelerated payback."

He raised concerns about companies with exposure to consumer spending or reliance on public sector spending. PwC's analysis also shows that more than two-thirds of Yorkshire companies on Aim were loss-making.

This could pose problems for some when they try to renew facilities.

"If a company borrows money, can they afford to pay capital and interest? Can they service their borrowing? They might struggle to service 100 per cent capital repayments, but can they service the interest? Companies that then struggle to even service the interest are where the danger signs start flagging up.

"If they are loss-making that exacerbates the whole scenario because there is no cash flow," he said.

The research reveals that the average market capitalisation of a Yorkshire Aim-listed company is 11.8m, while average balance sheet net worth is 14m, which suggests they are under-valued.

Mr Allison questioned whether these companies should be taken private or if investors should be more active.

He also questioned the liquidity of the investment pool in Aim.

While larger companies will be able to refinance more easily as they tend to have more diverse risk profiles and are better able to tap new markets, Mr Allison said smaller companies may find it harder to get fundraising through traditional channels.

There is only a finite amount of bank lending available in Yorkshire – the combined size of lending books in Yorkshire is conservatively estimated to be around 20bn – so smaller companies might have to look elsewhere.

"Should Yorkshire consider other channels such as attracting sovereign wealth funds, such as attracting Asian investors and banks to Yorkshire, such as maybe even creating a regional stock exchange?"

A DIFFERENT MARKET PLACE

Some of the larger national and international plcs have been agreeing so-called "forward start" facilities, in which they establish new arrangements ahead of when they are due for renewal.

"That's people looking and saying the banks themselves are going to have a challenge in meeting this maturity wall," said Martin Allison, the head of PricewaterhouseCoopers' debt advisory practice in Yorkshire.

The market place for lending has changed since many existing facilities were agreed.

"You have traditional British banks, some of them state-owned now.

"Some of the European banks who came to these shores are now not here.

"We have seen a disappearance of some players, obviously Irish and Icelandic for starters.

"You could look at some of the American, French and Germans. Some of them may have pulled back a bit.

"Some of the others – like Handelsbanken – are coming back in, sensibly, to the market, like the Swedes and the Danish. You can see some activity start to happen.

"People are also seeing opportunities, such as the Spanish.

"Yorkshire Bank has been steady away in providing a pretty sensible, prudent approach.

"You still see some people playing, but they are not as active in the property market and at the large, leveraged corporate finance end."

Mr Allison, a former high-flying banker at Royal Bank of Scotland, said pricing has hardened, although there is more price competition for the best covenants.