During the Covid-19 crisis, many companies have re-assessed their funding needs and reviewed how any increased borrowing; as a result, worsening cashflow, could best be met.
While their first port of call might be government-supported financing programmes or traditional bank lending, many corporations are not eligible for government schemes or deem it sub-optimal to source additional lending from banks. For these companies, an alternative route is to raise money against the company’s receivables – and consequently, a demand for receivables financing solutions, in which companies raise money by selling (as yet) unpaid invoices, has ramped up considerably in recent months.
But current conditions have also brought another complication: gauging the availability and pricing of financing is more challenging in the current volatile markets. As such, there’s a greater need for external support when it comes to securing the necessary funding. Funders can vary in their appetite, dependent on whether the client fits in with their sectoral or geographic strategy and is an existing client or not.
Why distribution with Demica?
Demica’s Distribution team enables companies to simplify and streamline the process of obtaining funding from a funder or investor. They can identify which funders could have an appetite for a particular transaction, and, having an agreed on a shortlist with clients, choose the right funder and put the necessary arrangements in place.
Banks have long offered distribution services, often by originating a deal and then syndicating it between themselves and other funders. But more recently, companies have turned to software vendors like Demica for support with putting financing arrangements in place.
Demica, last year, created its Distribution team to serve this market. The team complements the responsibilities of Demica’s Structuring team (who will analyse and then structure the financing transaction) by offering to help borrowers source funders from a wide range of potential providers.
Borrowers can choose to use Demica rather than working with a bank or banks directly because they can provide a “whole of market approach” as well as deliver the benefits of technology platform which makes their interface with funders more efficient and automated.
They have relationships with over 140 different funders, who either fund on their platform or have active discussions on funding opportunities. Demica offers a genuinely global multi-funder solution.
Demica’s Head of Distribution, Adam Barrett, said, “Demica believes that the attraction of the working capital financing asset class means that more non-traditional funders will enter the market alongside funding banks that have been the mainstay of this market to date. Demica is building its engagement with newer funders to ensure it delivers the optimal outcome for its clients going forward”.
How does it work?
Demica’s Distribution team works on transactions where we have been mandated to arrange and place the financing.
This involves several steps:
- Understanding the company’s objectives in terms of the amount of funding they are looking for, the level of diversification needed and the company’s expectations in terms of cost.
- Drawing up a list of funders that may be able to provide financing for the transaction.
- Communicating with potential funders to gauge interest in the transaction and drawing up a shortlist.
- Selecting the most suitable funder for the transaction in question and negotiating terms.
Demica’s Distribution team recently worked on several transactions. These range across receivables financings and securitisations for both investment grade and lower-rated borrowers as well as supply chain financings for larger clients. In all cases targeting the right funders has been a key part of obtaining competitive pricing for our clients. Funders have ranged from the large global trade banks through to regional banks and specialist non-bank investors.
The key to this process is staying abreast of how the broader financial markets are operating. The team is fully briefed on current market and pricing conditions to gauge appetite for a particular transaction correctly, as well as identify where that appetite might come from.
The funder market is changing structurally, and this has accelerated against the backdrop of currently febrile markets.
One key trend is the rise of non-bank financing providers. Funders such as asset managers, insurance companies and hedge funds are currently growing their business in receivables financing and supply chain financing to harness attractive investment opportunities. Demica has a good understanding of this new group of investors and how they can complement traditional bank funders.
Demica’s Distribution team also provides feedback and information to colleagues across the organisation so that everyone is aware of current conditions during conversations with clients. Again, this has become crucial in light of the recent volatility.
To learn more about Distribution Services, visit www.demica.com/services