Adam Johnson, managing director of corporate lending at GE Capital in the UK, tells M&A about refinancing Jaguar Land Rover.

Adam Johnson, managing director of corporate lending at GE Capital in the UK, tells M&A about refinancing Jaguar Land Rover.

In the last quarter of 2009, Jaguar Land Rover generated net profits of £59 million, the first time the business had reported profits since it was acquired by Tata Group in 2008.

This was underpinned with strong management strategy and a smart approach to financing arrangements, including a complex $250 million (£170 million) facility provided by GE Capital. The funding gave the company much needed flexibility for its working capital needs between the production of its vehicles and entering the distribution network across US and UK.

Adam Johnson, managing director of corporate lending at GE Capital in the UK, says: ‘The deal involved a high quantum of funding in multiple jurisdictions, and in an industry that has experienced a torrid time in the last 18 months.’

Johnson says he has seen plenty of demand for refinancing from businesses with unwieldy capital structures: ‘Businesses that were prone to the economic cycle like car manufacturers and shipping, chemical and packaging companies, found their turnover plummeting. They were breaching banking covenants with a stressed capital structure, and that’s where we come in.’

While refinancing was in vogue in 2009, M&A and transactional deal activity fell off a cliff: ‘There was very limited new transactional activity to work on. No one knew when the market would bottom out.’

Supply and demand

GE Capital is the financial arm of GE, the global infrastructure, finance and media company, and its UK lending division is segmented into Commercial, offering facilities of between £1 million and £15 million, and Corporate, which specialises in providing financing for up to £200 million to UK and European corporates with a turnover of more than £100 million.

Financing solutions offered include invoice discounting and term loans, and finance for plant, machinery and inventory. GE Capital recently arranged a £15 million facility with car rental business, Scot Group. Johnson says: ‘The solution was a combined inventory and receivables based financing. We offer a genuine collateral financing package, it’s not just receivables.’

Although GE Capital’s lending criteria remain ‘largely unchanged from previous years’, Johnson admits that the recession has had a cautionary impact: ‘We do conduct more due diligence on businesses now, ensuring business models are sufficiently robust and managed by able management teams in steering companies through what will continue to be unparalleled and uncertain times. There’s nothing worse than providing finance to a company that is heading for further distress, having not identified and addressed fundamental strategic and capital structure flaws in its business model. It’s about providing a business with a capital structure that enables it to reposition itself, not putting money on the table for a company that will inevitably fail.’

Flexible friend

As the UK emerges from recession, ABL providers are well positioned to take advantage: ‘Working capital is going to be stretched to accommodate growth, and it’s still hard to get debt funding; ABL facilities are flexible enough to provide that extra capital when it is most needed.’

That’s not the only reason to be positive: ‘It’s early days I know, but we’re seeing much more transactional activity this year, which was completely alien to the market in 2009.’

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