Last month, UK-based Burdale Financial Limited announced it was working with London-based furniture manufacturer and retailer MFI Furniture on a new credit package. The facility is being used to fund MFI’s turnaround and is one of the latest examples of comprehensive asset-based lending strategies or senior secured debt.
Dennis Levine, chief executive of senior secured provider Burdale, says that, while already established in the US, asset-backed financing is slowly increasing in Europe. “It’s definitely making its mark in the UK—albeit slowly,” he says. “[The] MFI [transaction] is making people say ‘Why did they go there?’”
It’s a strategy for distressed companies that is already popular in the US, with companies like Goodyear Tire & Rubber, Toys ‘R Us and Kmart Corporation utilizing senior secured debt as part of their refinancing packages.
Unlike asset-based lending—which is secured by inventory and accounts receivable—senior secured debt offers capital that is secured against most of a businesses assets, including land, buildings, machinery, intellectual property like brand names, stock and inventory, as well as money owed by debtors and accounts receivable.
The financing is most suitable for asset-heavy businesses like retailers, manufacturers, wholesalers, distributors and importers—the same sort of distressed opportunities that are often targeted by private equity firms and turnaround pros.
In the MFI deal, Burdale worked with Lloyds TSB Commercial Finance to provide a £150 million, 39-month credit facility, replacing the retailer’s current credit line. The funding is secured by MFI’s debtors, stock and property. Last year, Burdale supplied a similar facility to the turnaround of crystal and china maker Waterford Wedgewood.
Levine also says that the use of senior secured debt could pick up as private equity firms and hedge funds eye distressed companies in the UK.
“I believe you will see more funds to deal with turnaround,” he says. “Everyone is speculating about when there will be more transactions with all the debt that is going into transactions.”
In recent years, hedge funds like Los Angeles-based Oaktree Capital Management and New York-based Cerberus Capital Management have expanded into Europe, as competition increases worldwide and the region looks ripe for distressed investing—senior secured debt will no doubt be in on the action, as well.