Large groups, small cases: the financing their bank cannot do

A large group has substantial bank facilities, on terms few companies ever obtain. Yet some of its projects remain unfunded. Not because they are risky, but because they do not fit the framework the group has negotiated with its banks.

A common paradox

A large group's financing is designed for the group: a syndicated loan, credit lines, sometimes bonds. This framework works well for large needs and central entities.

It works far less well for what sits at the margin. A production site that wants to modernise a line. A foreign subsidiary growing faster than its local banks. Equipment spread across several countries. For these projects, the group's banking framework was not built.

Four situations we encounter

• The amount is too small for the group. A €1 or 2 million project does not justify reopening the syndicated loan documentation. Nor does it rank as a priority in the group's capital expenditure budget. The site director waits, or gives up.

• The asset is unusual. Refurbished machinery, specialised equipment, an older or poorly located industrial site: the bank cannot value it, so it does not finance it. Specialist funders, on the other hand, know the secondary market for these assets.

• The subsidiary is abroad. A subsidiary outside Europe needs to finance its inventory. Local banks ask for a parent company guarantee, which the parent does not want to extend. Currency, local security and upstreaming of cash flows complicate the case further.

• The assets are spread across several countries. A retail group owns a large base of equipment, spread across many countries. Each country has its own security law and its own funders. No bank wants to handle the whole, and nobody internally has the time to break it down.

Why the group's bank does not follow

The issue is not the quality of the group. It comes down to three very practical reasons.

• Existing bank documentation often restricts new security and new debt at subsidiary level. A small local financing may require the consent of the entire bank pool. See also our article on tight bank lines.

• Analysing an unusual asset or a distant subsidiary is costly for the bank, for an amount that is small relative to its relationship with the group.

• Decisions are made at headquarters, while the need sits at the site or in the subsidiary. The project often has no sponsor at the right level.

What works

1. Start from the asset or the cash flow, not the consolidated balance sheet. Inventory, receivables, a machine or a fleet of equipment can support a financing of their own, without weighing on the group's facilities. We explain this approach in our article on asset-based financing in industrial groups.

2. Break the project down. Rather than a global solution that never gets decided, address one country, one subsidiary or one asset type. A first successful scope opens the way for the next ones.

3. Check first what is possible. Before approaching any funder, map the assets, their real value and what the existing documentation allows. This work avoids dead ends.

4. Involve the project owner. The site or subsidiary director knows the need, group treasury knows the constraints. The case moves forward when both are at the table.

For subsidiaries outside France, see also our article Cross-border financing.

Our role

Youllsee is an independent financing advisory firm based in Geneva. We work with specialist funders in asset-based finance, inventory financing, factoring, sale & leaseback and private debt, alongside existing banks. We operate across Europe and in subsidiaries outside Europe. Every engagement is governed by a written mandate and confidentiality agreements.