Vol 18 (2021) - Issue 2

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A Tsunami of Unsustainable Debt: The Case for an Equity Solution

Synopsis
To help UK corporates weather the worst of the COVID-19 pandemic, the Government has offered an unprecedented package of support measures, predominantly in the form of loans and grants, offered interest free or on competitive terms. The consequence of this has been an increase in the quantum of debt on balance sheets, which is likely to grow even further in 2021. In this article, I discuss the looming debt problem that the UK faces, and my thoughts on the options available to corporates that may struggle to repay what they owe over the next year as support measures reduce and demands on businesses increase. In summary, I consider that the most appropriate solution, particularly for small and medium-sized enterprises (SMEs), is to consider equity investment as a mechanism to recapitalise the balance sheet.