Dear CFO / treasury teams – Time to put refinancing options on the agenda

Corporate borrowers in the UK face a refinancing environment that is both challenging and rapidly evolving. Elevated borrowing costs, a high volume of upcoming maturities, and ongoing economic uncertainty are creating what some describe as a “refinancing wall.” Corporates approaching maturity events in 2025, 2026, and 2027 will need to take proactive steps to secure sustainable capital structures.

The most immediate pressure is the rising cost of debt. While the Bank of England modestly reduced rates in early August, the effective borrowing cost for corporates remains well above the levels at which much existing debt was raised five to ten years ago. Investment-grade borrowers may see spreads tighten, but those with higher leverage or exposure to cyclical sectors are refinancing at materially higher coupons. For some, this represents a doubling of debt service costs and a significant drag on cash flow.

The next Bank of England rate decision is scheduled for 18th September. However, given persistent inflation, wage growth, and mixed unemployment data, further rate cuts remain uncertain. In fact, inflationary pressures may even lead to rate increases next year.

Sector vulnerabilities are also emerging. Real estate, construction, and manufacturing companies—already contending with margin compression from input cost inflation—are more exposed to refinancing stress. Lenders are scrutinising covenant headroom and resilience more closely, resulting in tougher terms, tighter structures, or demands for additional security. Firms with weaker credit profiles may find their pool of potential lenders narrowing (as we at Thomson Snell & Passmore have recently observed), raising the risk of distressed refinancings or restructuring conversations.

In this environment, borrowers should broaden their view of available financing solutions. The broadly syndicated loan market (BSL) remains available, but private credit has grown in significance, offering flexible structures such as unitranche facilities, payment-in-kind (PIK) toggles, covenant-lite terms, term loan B structures, amortisation holidays, extended maturities and faster execution.

However, for borrowers with stressed cash flows, lenders are demanding higher yields, tighter covenants, and equity warrants.

Liability management exercises, such as amend-and-extend transactions, can provide breathing space where outright refinancing is not immediately viable, but they offer no long-term solution.

Preparation is critical. Early engagement with lenders, transparent communication of business plans, and stress-testing of financial covenants will enhance credibility and optionality. Borrowers that leave refinancing discussions too late risk being forced onto unfavourable terms or into defensive restructurings.

While the UK refinancing market is under pressure, liquidity is still available—particularly for well-prepared and strategically flexible borrowers. Those that adopt a proactive stance—balancing cost, structure, and lender mix—will be best positioned to navigate the current cycle and secure long-term financing resilience. Boards should be weighing opportunistic refinancing strategies, even if maturity is still some way off. Our banking and finance experts have extensive experience in advising on refinancing. Get in touch if you have any questions.