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Five real covenants enforced by banks on food companies

05 December 2016

The following are true stories –  Names have been redacted to protect the innocent. 

1. A packaging company CEO, majority owner of a £580m revenue company was told he couldn’t buy a boat because the bank was “concerned” the company was getting too close to a dividend restriction. The company just completed a FYE with their highest earnings ever and exceeding their benchmark fixed charge coverage/funded debt to EBITDA ratios by more than 4x.

2. A contract biscuit manufacturer had to set up interviews with for their new Treasurer with their 3 bankers before they could offer her the job. The bankers were 34, 28 and 27 respectively, had never interviewed a treasurer in their life and of course never worked in the food industry. One asked what kind of music she liked in the interview.

3. The widow of a £1bln distribution company CEO, who had never been involved in company operations and hadn’t worked outside of raising their 4 children in 40 years, was told by the bank that she had to act as the CEO of the company for at least 6 months before she could divest her equity to other company owners. They even provided a monthly schedule of meetings she must attend where the minutes and attendance had to be notarised.

4. A £700m meat packing company was coming off their best year in company history and had reduced leverage to nearly nothing.  The company had recently expanded their bank relationship to include very high yielding F/X hedging for the bank and hundreds of thousands in interest rate hedging. Only days after closing that deal, they were fined £250k because they financed a £75k sorting machine with a finance company without asking for the bank’s permission. 

5. A £2bln flavour development company, preparing for an upcoming IPO, was in the process of changing CFOs because of an unfortunate cancer diagnosis with the exiting CFO’s spouse. The bank group would not support the IPO if the CFO left the company, because of a management control provision and as they stated in the notification letter, “…we feel with the appropriate personal support, the ‘individual’ could persevere while continuing on as CFO.”

It might be time to establish a lending relationship that reduces restrictions and enables growth. A non-bank relationship that is more about you and allows you to run your business again. 

Go beyond the bank and beyond finance.
At Somerset, we think financial solutions for equipment acquisition and management are about more than money. It goes beyond finance. In fact, Somerset's unique equipment knowledge allows us to deliver more flexibility and without the restrictive nature of bank relationships. And if we can help you go beyond finance, let’s talk.

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