A World of Trouble

Europe and Asia agree: Credit is hard to come by and there is little relief in sight.

All Stuart Hall wanted was a quiet drink. The CFO of Pace Plc, a Yorkshire, UK-based maker of digital TV set-top boxes, was relaxing in a hotel bar in Hong Kong late one night last October, having spent the day studying possible Chinese acquisition targets. Then his phone rang. It was a colleague in the UK, calling to tell him of rumors that British banks, already in meltdown, might soon be partly nationalized. “I thought that when I got back I’d see tumbleweeds flying down the street and buildings collapsed, like something out of Mad Max,” Hall recalls.

Yet it was breaking news outside the UK that really concerned Hall, specifically the unfolding crisis in Iceland, where Landsbanki had entered receivership and had its UK assets frozen by the British government.

That was a problem for Pace, which had been using a $48 million asset-backed lending facility from Landsbanki Commercial Finance, a UK-based arm of the Icelandic bank.

Fortunately, Hall had prepared for a moment like this. Ever since Pace paid €95 million to acquire Philips’s set-top box business at the end of 2007, the finance chief had wanted to bring in joint bankers. After all, he had reasoned, the company had doubled its revenue in 2007 and would double it again thanks to the acquisition.

But striking up a relationship with another financier was easier said than done. Despite agreeing with Landsbanki that it could bring in another bank, Pace found the demands of integrating the acquisition too much, and it did not sign agreements with any other banks. But it did keep talking to them, which meant that when the line with Landsbanki was pulled, Pace could immediately sit down with three domestic banks to discuss a replacement facility. Indeed, the company ended up with three offers from UK banks, including a £35 million revolving-credit facility from Royal Bank of Scotland (RBS), its existing clearing bank, which it signed in December.

Are concerns about bank stability making you reconsider where you keep your company's cash?

So everything worked out fine, right? Not quite. Even though Hall says Pace has a good arrangement with RBS — the credit line is cheaper than many he has heard of — getting there was tortuous, and constraining. “I have companies in Latin America, America, Malaysia, Hong Kong, China, France, Spain, Belgium,” Hall says. “Every company is its own individual legal entity. The bank wants to try to tie you down all over the world with security. That whole process is very, very difficult and doesn’t give you any flexibility. You’ve got to get the bank’s permission for so much.”

And yet Pace may be luckier than other companies. A December survey of UK firms found that banks had pulled unused credit lines on a third of respondents, and more than half said they did not expect to be able to renew current credit lines in full during the next 12 months.


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