A Business under Pressure from its Bank

Bill Meeke was approached to assist a company which was undergoing a change in its banking relationship for unexplained reasons. A mutual acquaintance believed the company’s bank was preparing for a rapid exit which could compromise the business.

The events unfolded during the GFC and at a time when Australian banks were re-assessing their risk profiles, exiting non-preferred lending arrangements and not undertaking new lending arrangements.

The business concerned had debt facilities totaling $13-million and realizable assets valued at $42-million. The principals believed their banking arrangements were safe and sound. Any attempt to place the debt facilities elsewhere at this stage of the GFC would have been fraught with risk and the client was in no position to liquidate the debt without significant compromise to the balance sheet.

An examination of the business performance against its lending covenants indicated that the account was probably under watch by the credit department and other factors suggested to us that the account had already been moved from the branch to the asset structuring department of the bank. This later proved to be correct.

Requests by the bank for additional information gave further rise for concern.

We suggested that a meeting be convened between the client and the bank to ascertain if the bank was moving towards ‘exiting the file’ and, if so, to request sufficient time for an orderly transition of the banking relationship.

It transpired that the bank had become concerned about the account but the meeting resulted in a resolution of the issues and a renewal of the client’s facilities.