Shipping not properly prepared for uncomfortable bank meetings
Paul Edwards, a Moore Stephens corporate finance director, says, “Shipping is experiencing tough times. An increasing number of companies are unable to repay or, in some cases, even service their debts. That could mean an uncomfortable meeting with the bank. But too many companies are not properly prepared for such an encounter.
“Businesses must be able to produce properly documented and timely financial information for their stakeholders, which should include a view of the future. In good times, when charter rates exceeded operating expenses, little attention needed to be paid to future cash flows and debt service. But today, it is essential to be able to anticipate, to the extent that it is possible, future cash flows and pinch points.
“It is essential to provide banks with detailed information in the event that it becomes clear that a company may default on the terms of a loan. It is better still if this can be done before any covenants are breached or payments missed. In these difficult times, the key is for businesses to help banks to help them, by anticipating defaults or breaches and presenting a solution, rather than waiting for the default. This cannot be achieved without a proper financial model.
“Clearly, a model is not a panacea for difficult trading conditions, but working with a bank to present its credit committee with a potential solution, rather than with a problem, is more likely to engender a positive attitude to any restructuring.”
Financial modelling is a key component of any renegotiation of facilities. A viable model, typically including integrated balance sheet, profit and loss account and cash flow statement, can help to support a restructuring proposal, by demonstrating the impact of changes on future cash flow. Paul Edwards says, “Financial modelling doesn’t change the economic fundamentals of a business. But it is a tool with which to identify ways to manage the impact of a volatile market. A good quality financial model is also an invaluable, ongoing management tool. It can be used to make longer-term strategic decisions and to determine the nature and structure of future investments and the potential returns on investment.”
Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. www.moorestephens.co.uk