The Bank of England warned that UK companies risk being locked out of funding if investor sentiment suddenly sours.
(Bloomberg) — The Bank of England warned that UK companies risk being locked out of funding if investor sentiment suddenly sours.
Sarah Breeden, the UK central bank’s executive director for financial stability, said many companies have shifted away from bank lending and toward market-based finance since the financial crisis, and that leaves them vulnerable to shocks and sudden changes in global risk appetite.
Market-based finance accounts for more than half of total corporate debt. It includes riskier high-yield bonds, leveraged loans and private credit markets. While the central bank can act to support bank lending, market-based funding is more vulnerable to swings in sentiment and pressures abroad.
“Increased dependence on market-based finance leaves UK corporates exposed to new shocks, especially in riskier market segments, like high-yield bond, leveraged lending, or private credit markets,” Breeden said Thursday at the Insolvency Practitioners Association’s annual conference.
“A sudden or disproportionate reduction in investor appetite for these assets, in combination with forced sales and sharp falls in asset prices, could impact UK firms’ ability to access funding, potentially forcing some companies to deliver or even default.”
Market-based finance accounted for nearly all of the rise in net lending since 2007, she added.
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