“Consideration may need to be given” to free money from taxpayers “to meet solvency or liquidity requirements,” but only “at the extreme end,” whatever that means.
By Nick Corbishley and cross-posted from WOLF STREET.
Many struggling businesses in the UK, both large and small, will soon be sitting on debt piles they won’t be able to service as the emergency loans they’ve taken out to survive the lockdown and its aftermath begin to fall due. That’s the stark warning of an “interim report” by the Recapitalisation Group (RCG), a task force assembled by The CityUK, one of the UK’s most powerful financial lobby groups, at the “encouragement” of the Bank of England, to explore ways of recapitalizing small and medium-size enterprises (SMEs) when the inevitable debt defaults begin.
By early next year, non-financial businesses will have between £32 billion and £36 billion of additional debt they cannot repay, the RCG warns in the report. That fresh debt, on top of the distressed business debt that already existed before the crisis, will leave UK businesses with between £97 billion and £107 billion of what the RCG calls “unsustainable debt.”
Around half of that debt will belong to SMEs. Almost all of it will be owed to banks. Although the loans are ostensibly backstopped by the government, some banks, according to The Sunday Times, are beginning to fret that when companies begin to default on their debt, the government backstop will not automatically kick in, leaving the banks holding big losses on their loan books…