Companies do not fully feel the effects of interest rate hikes until after five quarters

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5 quarters. That’s the time it will likely take for the interest rate hikes by the U.S. Federal Reserve to fully impact the interest expenses of companies, according to a new study by the Federal Reserve Bank of Boston (see the study in English here). This is the reason why, after a year and a half of implementing anti-inflationary measures, only now are companies starting to experience an increase in the financial cost of their debt.

The graph shows the historical evolution of the interest rate of the American Federal Reserve (light blue line) and the non-immediate effect on the financial cost for companies (red line).

This delayed effect of restrictive monetary policies is also likely to be seen in the European realm. Since March 2022, both the U.S. Federal Reserve (the Fed) and the European Central Bank (ECB) began raising reference rates in an effort to curb inflation. Since then, the Fed has raised its rate from nearly zero to 5.25%, and the ECB has raised its main reference rate to 4.5% following the recent 0.25% increase on September 14th.

When central banks raise their interest rates, companies must pay higher rates on any variable interest debt they have, and on any debt they refinance. This leads to the need to offset this increased cost by reducing expenses and, in severe cases, by containing wages or laying off some of their employees. The rising cost of debt can also cause treasury difficulties and loan defaults.

The researchers of the mentioned study state that “regarding the current cycle, this finding suggests that most of the interest rate hikes have not yet been fully transferred to companies’ interest expenses.” They add that “it’s possible that the initial rate hike of 0.25 percentage points in March 2022 has fully impacted the interest expense ratio of companies, but they have not yet felt the full impact of the subsequent 5 percentage point hikes.” This contrasts with other parts of the economy, such as the real estate market and the banking system, where the high interest rates have already had an impact.

For companies, it is time to prepare for this rate hike which, in a deferred manner, will have an impact on their operating accounts and their treasury in the coming months. As always, Altria Corpo will be there to assist these companies in finding the best financial solution for these situations.

Altria Corpo obtains 50 million in financing for its clients up to June

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The wide variety of financial solutions obtained is the main feature in a year marked by the exit of the pandemic and the restriction of bank credit in a context of inflation and probable recession.

The financial consultancy Altria Corpo, which specialises in advising medium and large companies on financing, raised 50 million euros in financing for its clients in the first half of the year, with more than 30 transactions successfully advised.

In a context of great difficulty in accessing bank credit, the firm has obtained very varied and innovative financial solutions, both from the banks themselves and from alternative financing.

Some of the most significant operations have been the Sale&Lease-back of an industrial building for a company in the metal sector, for which the company obtained a liquidity of 2.8 million euros to undertake its business plan; a mortgage loan of 1. 2 million second-ranking mortgage loan on its facilities granted to an industrial company by a public financing institution; a loan of 5 million euros to a plastic packaging company granted by a debt or direct lending fund; the financing of the acquisition of an industrial company in a 50% leveraged operation thanks to the ICF; and the advisory and execution of a 7.2 million euros syndicated loan for an industrial company, with the participation of seven financial institutions.

Likewise, in a difficult context for many companies, after two years of reduced income due to the pandemic, Altria Corpo has advised some clients in the novation of Covid-19 loans with ICO guarantee, in the search for alternative financing to complement bank financing and reinforce the liquidity of companies, or in the processing of operations of the Fund for the Recovery of Companies affected by Covid-19 (FonRec) managed by Cofides. Of the latter FonRec operations, it is worth highlighting the financing by means of personal loans and equity loans for a total amount of 4,300,000 euros to an important catering group.

As Ramiro Lama, Altria Corpo’s partner and head of financing, points out, “it is in operations of more than one million euros and where companies have more difficulties in obtaining financing, where Altria Corpo can give more added value to the relationship with its clients. Altria’s in-depth knowledge of all the financial solutions available on the market and its ability to structure a proposal adapted to each need are the reasons why medium-sized companies find in Altria the right partner for their search for financing“.

The first half of 2022 also saw important milestones for Altria, such as the strong boost in activity in Madrid with the incorporation of Rubén Huertes and Fede Suárez, and the consolidation of the alliance with PKF Attest in areas that complement Altria Corpo’s offering, such as Corporate Finance, Debt Capital Markets, Technology and Legal and Tax Advisory, among others.

Altria is a Barcelona-based firm founded in 2014 by Albert Gumà. Its clients are medium and large companies, to which it offers its expertise in all types of debt and equity financing, and access to more than 170 financial providers including banks, alternative financing, public financing, debt funds and other instruments. In its almost ten years of existence, Altria Corpo has positioned itself as a benchmark in the search for financing for medium and large companies, with an accumulated amount advised of more than 350 million and more than 600 operations. The scope of the companies advised covers the whole of Spain, with a concentration in Catalonia, which represents 70% of the total volume advised.

Talk by Eloi Noya at Acció: “From crowdfunding to tokenization”.

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Our Managing Director, Eloi Noya, was invited by Acció – Agència per la Competitivitat de l’Empresa, the Catalan Government’s agency dedicated to promoting innovation and internationalization of Catalan companies, to give a presentation on the different alternative financing instruments available to small and medium-sized enterprises.

The presentation, entitled “From crowdfunding to tokenization”, took place on 26 April and was attended online by more than 200 companies who were able to learn first-hand about the many solutions that exist on the market and which Altria Corpo allows access to.

Among the most relevant instruments that Eloi Noya explained are some that are still largely unknown by the owners and financial directors of small and medium-sized companies, such as the following:

  • investment crowdfunding or equity crowdfunding, which allows capital to be raised for start-ups or companies that need equity to undertake strong growth.
  • private debt funds or direct lending for the medium-sized segment of companies that want to make investments with more flexible repayment financing adapted to expected cash flows.
  • balance sheet asset-backed financing, with imaginative solutions ranging from the use of existing fixed assets for a rent-back, to a loan secured by inventory, to the more familiar factoring or the use of customer receivables as collateral.

Eloi Noya used the last minutes of the presentation to explain the tokenization of assets, a new concept that, through digital assets, allows the ownership of assets such as real estate, art or shares to be fractioned, so that they can be used for the transmission of these assets in a blockchain environment, or to obtain financing and liquidity in a more agile, efficient way and without intermediaries.

You can see the whole speech in the following link (speech in Catalan):

Altria Corpo and PKF Attest support companies in applying to the COFIDES Recapitalisation Fund

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The COFIDES Recapitalisation Fund aims to quickly and effectively strengthen and restore the solvency of medium-sized companies (between 10 and 400 million euros in consolidated turnover) in any sector which, having no viability problems prior to the COVID-19 crisis and being viable in the medium and long term, are being affected by the effects of the pandemic.

In addition, those companies that exceed 400 million euros and justify not having been able to access the SEPI Support Fund, because they do not reach the minimum amount of support provided for in this fund, may also apply for and be beneficiaries of the Cofides Recapitalisation Fund.

  • Maximum total amount to apply for:
    • Large Enterprise: between EUR 4 million and EUR 25 million per beneficiary.
  • Type of instruments:
    1. Equity instruments and/or equity hybrids (participating loans): the minimum amount necessary to ensure viability and not to improve the capital structure at 31/12/19 (measured as Equity / Net Financial Debt).
    2. Other additional credit facilities (normally ordinary loans): the most favourable amount for the company resulting from (i) 2 x annual wage costs 2019, (ii) 25% total turnover figure 2019
  • Term:
    • Equity instruments and/or equity hybrids: maximum 8 years (up to 2029)
  • Remuneration (margin):
    • Equity instruments and/or equity hybrids:
Beneficiary typeYear 1Year 2 and 3Year 4 and 5Year 6 and 7Year 8 ff
SMEs2.25%3.25%4.50%6.00%8.00%
Large companies2.50%3.50%5.00%7.00%9.50%
  • Other complementary credit facilities:
Beneficiary typeYear 1Year 2 and 3Years 4, 5 and 6Minimum
SMEs0.25%0.50%1.00%6.00%
Large companies2.50%3.50%5.00%7.00%

Such aid may be granted until 30 June 2022.

In the next post we will detail the eligibility criteria.

Real estate financing pills (1): forward purchase vs. forward funding

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In this article we explain two terms that are becoming increasingly common in the structuring and financing of real estate projects: forward purchase and forward funding.

  • “Forward purchase” is a contract for the purchase of a future building, by virtue of which the developer-seller undertakes to promote the construction and marketing of a real estate project within a certain period of time, and the investor-buyer undertakes to pay a price for this real estate project that has already been marketed, and which guarantees him a certain profitability. The consummation of the purchase is subject to a deadline and to the fulfilment of the stipulations of completion of the project and marketing.

It is clear, therefore, that this formula has advantages for the investor-buyer, as he does not have to cover the construction/insolvency risk of the developer, less knowledge of the project development is required and the purchase agreement is much simpler, while on the other hand, the participation rights in the construction/rental phase will be less extensive and the purchase price will probably be higher. Sometimes a down payment of 5% is also agreed at the signing of the contract.

  • Forward funding, on the other hand, is a contract for the purchase of a future building or the purchase of a future thing, whereby the developer-seller undertakes to promote the construction and marketing of a real estate project within a certain period of time, with financing to be provided by the investor-buyer.

In a forward funding transaction, the parties enter into a purchase and sale agreement with development obligations of the seller at an early stage, often before development work has started and sometimes even before the project has been secured. However, the purchase price, in contrast to the forward purchase, will be paid in instalments depending mainly on the progress of construction (but sometimes also depending on other requirements, such as obtaining the licence, entering into lease agreements, amendment of the building permit, etc.). The last instalment will usually be paid after the usual requirements for the purchase price to be due (registration of the priority notice of transfer; removal of encumbrances from the land, etc.) and after the (main) tenant has taken over the object of the lease (and preferably paid the first rent without reductions) have been fulfilled.

In this case, the developer has the advantage that he needs little or no bank financing, while the buyer – in addition to a higher return – assumes the risk of insolvency and the general risk inherent in construction.

To minimise the risk on the buyer-investor side, not only the due diligence process has to be more detailed but also the sale and purchase agreement has to provide for certain security mechanisms: the seller’s insolvency risk has to be covered; termination rights, if possible, backed by guarantees for the repayment of instalments paid so far, etc. and mechanisms have to be in place to ensure that the requirements for the different instalments of the purchase price can be objectively verified.