Recapitalisation

The Covid-19 pandemic has placed immense stress on UK businesses of all sizes and across all sectors.

The UK government has responded with far-reaching stimulus measures including business funding packages and support for UK workers. As a result of these necessary interventions, many businesses have taken on higher levels of debt than they would have planned for. The demands of this debt may compromise the growth and viability of many UK businesses if there are no supportive mechanisms in place.

To address this challenge, TheCityUK established a Recapitalisation Group through its Leadership Council, engaging firms right across the UK-based financial and related professional services industry as well as key industry stakeholders and policymakers. Chaired by TheCityUK Leadership Council Chairman Sir Adrian Montague and supported by EY, the group is focused on understanding and identifying mechanisms to support the recapitalisation of UK businesses which have needed to take on this additional debt in response to Covid-19.

The group’s work includes consideration of the potential scale of issue, how the financial services sector can support any such recapitalisation, how existing and new private, public and hybrid proposals can support businesses, and ultimately, how to protect employment and speed economic recovery.

On Monday 11 May, we wrote to Bank of England Governor, Andrew Bailey, to share an initial analysis from the Recapitalisation Group on the potential level of unsustainable debt held by UK businesses in light of the Covid-19 pandemic. That letter also set out our approach to finding industry-led solutions to recapitalise these businesses and support economic recovery. 

The group published an interim update on Monday 8 June covering its early-stage thinking on solutions to support UK SMEs manage the unsustainable debt built up during the Covid-19 pandemic. It sets out the scope of the challenge, considers the sectors most likely to need support, explores how private sector capital could be mobilised and what gaps could remain for the public sector. It also discusses key challenges for any proposed solutions to ensure they work for business right across the UK. You can read the update here.

The final report of our Recapitalisation Group, supported by EY, was published on Thursday 16 July. It highlights that up to 3 million jobs across the UK and 780,000 SMEs are at risk if urgent action isn’t taken to tackle the projected £35bn of unsustainable debt from Covid-19 loans. The report sets out a far-reaching set of options for converting, restructuring and repaying this debt to help hundreds of thousands of SMEs get back on their feet, save millions of jobs, protect billions of pounds of taxpayer money, and help power Britain’s economic recovery and future growth. You can read the full report here.

The report was the culmination of intensive work by over 200 senior practitioners from 50 firms across the financial and related professional services industry and beyond. It was compiled in consultation with HM Treasury, the Bank of England and the Financial Conduct Authority, as well as business trade associations representing a wide spectrum of business sectors and sizes. We are very grateful for the significant time, effort and expertise that has been invested into this work from everyone involved.

Work will continue over the coming month to engage policymakers and stakeholders, discuss the challenge facing SMEs, and urge for progression on the options set out in the report.