I’m being asked to look at more cases of companies ‘locked into’ ‘swap deals that threaten the business. These can be past deals where they now wish to exit them, or cases where banks are restructuring existing lending on the condition that a swap deal is taken out. They can be good – effectively a fixed rate deal and if the pricing is right it can do what any good fixed rate deal can do. However the increasing concern is that business owners without full-time FD’s are being asked to sign up to complex deals that a good professional FD might struggle to understand. The small print on these cases is hardly user-friendly and there are a host of different permutations on how they can be structured – I have seen one recently which was a ‘legacy’ case where the swap term extended beyond the original loan. I also have a case where breaking the swap deal is going to add nearly £100k to the cost of closing a company down and the bill that an ill Guarantor is going to have to meet. These products can be good – but have to be sold by the banks with more transparency where they are dealing with a busy business owner under pressure rather than a corporate FD. On their part business owners should seek advice if they want to properly understand the long-term implications of these products.
