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Company Credit Rating workarounds

Company Credit Rating workarounds

I have a client that has a poor credit rating owing to its funding structure (large amount of debt from a company under common ownership), plus it has been running a small loss each year since inception a few years ago. It continues to receive unconditional support from its related company, so is very much a going concern.

Its financials are causing it to miss out on tenders as it fails financial due diligence based on its credit checks.

Does anyone have experience of workarounds in this scenario? 

My current thoughts are:

1. Debt/equity swap to remove the loan (not done this before and I suspect it's costly and has tax consequences).

2. Obtain letter of support from the related company providing the loan finance.

3. Use the related company with the healthier financials for due diligence purposes, provided the customer is happy to contract with them instead.

Any thoughts on these approaches, or any other advice on dealing an entity with a poor credit rating in tender situations?



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04th Mar 2016 11:50

The easiest and cleanest solution is to capitalise the loan, which despite your concern has no tax consequences. But bear in mind that it takes the asset out of the lender's current assets, so it will make its balance sheet look worse.

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