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Non-bank lending could ease GBP450bn funding needs for midsize UK companies, say S&P

Many UK mid-market companies are failing to recognise the benefits of non-bank lending as a source of long-term funding, according to a panel of industry participants at an event hosted by Standard & Poor's Ratings.

"Bank deleveraging and tightening regulation are creating a scarcity of finance for many companies in Europe," says Standard & Poor's vice president of market development EMEA Roberto Rivero. "But this scarcity is particularly acute for the so-called "squeezed middle" – UK companies with revenues of between GBP85m and GBP1.3bn – which we estimate will need up to GBP450bn in debt funding over the next five years. This amount comprises GBP320bn of refinancing and GBP180bn of new financing."
 
Rivero was speaking at the first of a series of European events hosted by Standard & Poor's to discuss sources of alternative finance for mid-market companies. Joining him for the event, held at the Berkeley Hotel in London, were speakers from the Confederation of British Industry (CBI), private placement investor M&G Investment, and corporate adviser Deloitte. All the speakers focused on the struggle facing mid-market companies seeking bank finance, and their potential lack of awareness of the alternatives.
 
"Banks are not natural providers of long-term finance, but only the savvier businesses we are working with recognise this," says Hayley Conboy, head of enterprise at the CBI. "As such, the CBI will continue to play an important role in educating businesses about alternative sources of finance."
                                                                                      
"It will take time for mid-market companies to get used to alternatives such as private placements," says James Douglas, global co-head of debt advisory at Deloitte. "But until they diversify their sources of finance, some UK companies will experience funding challenges."
 
Private placement was discussed at length by Simon Fretwell, a director at M&G Investments. He pointed out that investors in this market are buy-and-hold investors who want a long-term relationship with these companies.
 
"While there is heightened appetite from institutional investors for investing in midsize companies, barriers also remain on the supply side," says Rivero. "Potential investors are reluctant to invest in midsize companies until they have more clarity on these firms' creditworthiness. We hope our series of events, alongside the launch of our Mid-Market Evaluation product – Europe's first credit benchmark aimed specifically at midsize companies–will help to provide this missing link."
 
The second in the series of London events, to be held at the Bulgari Hotel on 5 December, will feature speakers from the CBI, Metlife, and Barclays.

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