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In a report out today from TheCityUK, supported by EY, the UK-based financial and related professional services industry has published a far-reaching set of options for converting, restructuring and repaying the projected £35bn of unsustainable debt from Covid-19 loans to help hundreds of thousands of SMEs get back on their feet, save millions of jobs, protect billions of pounds of taxpayer money, and help power Britain’s economic recovery and future growth. The options, if taken forward, present a real opportunity for the government to leave a lasting positive legacy of regional growth and investment across all parts of the country.

At the encouragement of the Bank of England, TheCityUK convened a group of senior practitioners from across the financial and related professional services industry to think creatively about how industry and Government could work together to address the economic challenge brought by Covid-19 and support the recapitalisation of businesses.

The scale of this work has been as unprecedented as the challenge it sought to address, with over 200 individuals from over 50 firms volunteering their time and expertise. The Recapitalisation Group (RCG), chaired by Sir Adrian Montague, has produced innovative outputs that are grounded in technical analysis and represent a broad consensus of expert views representing every element of the financial services industry. The recommendations in the report have been developed through extensive consultation with businesses, regulators, Government across the UK and the Bank of England.

Herbert Smith Freehills’ Chair and Senior Partner James Palmer was appointed as one of the 10 members of the RCG Senior Steering Group. Other members are Omar Ali, Managing Partner, UK Financial Services EY; James Bardrick, CEO, Citigroup Global Markets Limited; Lord Blackwell, Chairman, Lloyds Banking Group; Miles Celic, CEO, TheCityUK; Peter Harrison, Group CEO, Schroders; Sir John Kingman, Chairman, Legal & General; Catherine McGuinness, Chair of Policy and Resources Committee, City of London Corporation; Sir Adrian Montague, Chairman of the Leadership Council, TheCityUK; and Bob Wigley, Executive Chairman, UK Finance.

The Herbert Smith Freehills team actively contributed to the underlining work streams. James and the team contributed significantly to the development of the core recapitalisation structure options which are central to the proposals. Head of International Private Funds Strategy Jonathan Blake was a member of the RCG Technical Working Group, and co-led the funds and funding work stream. Other working group members from the firm included Nigel Farr, Siddhartha Shukla, Isaac Zailer, Kevin Pullen and Shantanu Naravane

Herbert Smith Freehills’ Chair and Senior Partner James Palmer commented:

“TheCityUK’s report sets out potential options and choices for the UK Government on issues of fundamental importance to the economic recovery from Covid. The Government response to date in supporting jobs and providing liquidity support to businesses has been unparalleled in our lifetimes. But the next challenge, as the Report draws out, is how to support the recapitalisation needs of thousands of fundamentally good SME businesses with capital severely impacted by Covid.

SMEs, particularly the smallest, do not have access to equity capital in the way many larger businesses do. Thousands have received Government backed loans, but that will not stop large numbers of them becoming insolvent and closing if they cannot access capital to replace debt. The proposals are designed to give Government options to make its policy choices as it seeks to balance prudence and taxpayer interests on the one hand, with on the other hand supporting jobs, the UK economy and tax base, and to overcome the risks of structural scarring to the economy.  The issues are urgent, and as the Report shows, recapitalisation solutions can not wait until next year.

The project and underlying technical work, coordinated and led by EY, has involved outstanding collaboration across numerous member firms of TheCityUK. We are delighted to have been able to support and contribute to the Report.”

Head of International Private Funds Strategy Jonathan Blake added:

“Private sector funds will inevitably provide vital support for recapitalisation needs, in particular of larger businesses with established routes to capital. The Report also explores how private sector support for recapitalisation can be further facilitated at the different stages of recapitalisation and of refinancing of any Government capital support which is ultimately provided.”

TheCityUK’s press release can be found here.

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Lydia Lam

Head of Communications, UK, US & EMEA