Back in the old days, I remember when you could rely on a “committed” bank facility to give you confidence that your business had sufficient funding headroom to underpin the board’s going concern statements in its financial accounts. Recently, doubt has started to creep in - in particular, does “committed” really mean what it used to?
We understand that there may be circumstances where a bank might, under legal advice or specific regulatory direction, choose not to honour its obligations under a committed bank facility. This is a potentially worrying development and may well change future going concern discussions around the board room.
Furthermore, we are also increasingly becoming concerned about the practical consequences of the ISDA 2014 Resolution Stay Protocol. Since its launch in November 2014, 115 banks have signed up to this new ISDA swap protocol. In due course there will no doubt be pressure applied by the swap market for non-financial corporates to sign up to this ISDA protocol. Is this a worry? It should be.
As you’d expect, the ACT’s first class Policy & Technical team will be sticking close to both developments. However, please do drop us an email to technical@treasurers.org if either are troubling you. Whilst we appreciate the considerable progress that has been made in improving the quality of bank balance sheets since the financial crisis, we are already worrying about the next. So if you have swaps “in the money” and/or undrawn “committed” bank facilities which underpin your funding headroom please pay careful attention to the ever-tightening bank resolution landscape.
Are we going to see the emergence of two new market phrases? “Maybe facilities” and “blocked swaps”? Never mind, that old trusty caveat emptor continues to be a banker - no pun intended.
Keep your eyes peeled and your ears pinned back.
All the best
