Aberdeen firms get flexible with alternative funding as low oil price continues

Asset-rich North Sea businesses are turning to alternative methods of funding ongoing operations as conditions in the region continue to prove challenging, according to lawyers at HBJ Gateley.

Despite a recent recovery in the price of a barrel of crude to nearer $50, the ongoing low oil price has all but ruled out refinancing of bank debt. Many firms have exhausted cash reserves and have made use of asset-based lending to unlock new sources of cash.Addi Shamash, a partner in HBJ Gateley’s Aberdeen office, said many oil and gas firms with an inventory of assets were borrowing against those to ensure continued operations in the area.

She said: “Companies in the North Sea need flexible access to cash so they can stay nimble and are able to respond to a market which remains extremely unpredictable. Asset-based lending has long been a good alternative for companies which want more flexible methods of financing than a longer-term debt facility, for example. North Sea companies tend to have valuable assets on the balance sheet, which can be used to unlock finance.

“The reality of life in the North Sea is that many companies are coming under pressure with their existing debt facilities, have exhausted their cash reserves and have to find alternatives which will allow them to have a viable future.

“Asset-based lending provides flexible finance options for companies, which can provide the lender with appropriate security. The oil price is recovering, but the increase will take time to filter down the supply chain, so alternative methods of finance are a welcome way to protect core business operations in the meantime.”

HBJ Gateley’s Aberdeen office has recently advised on asset-based funding deals for a number of manufacturing and processing companies, which have been keen to take advantage of the speed at which these facilities can be put in place.

Ms Shamash added: “Asset-based lending doesn’t have the same stigma it used to, and right now cash is king.

“The North Sea has proven itself time and again that it has the resilience and innovation to weather tough times, and what we’re seeing is a real determination from oil and gas firms that they’ll fight tooth and claw through this current situation.

“Adopting a more flexible mindset to ongoing funding and being open to new ideas is a critical part of how companies endure difficult environments – we’re in challenging times and Aberdeen is working very hard to maintain an effective economy which remains a very relevant presence on the global stage.”

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