HRD's pocket guide to... corporate refinancing
Thirza Tooes, May 25, 2018
The HRD’s pocket guide series offers an explanation of areas outside day-to-day HR that business-savvy HRDs need to have a handle on
Why do I need to know about it?
Corporate refinancing is the way a company reorganises its financial obligations by replacing or restructuring existing debts. It can be done for both positive and negative reasons; for example to take advantage of low interest rates, or when a firm is in financial difficulty. Usually the outcomes of corporate refinancing (whatever the circumstances) are lower interest payments, more favourable loan terms, and/or access to cash that can then be used for other purposes.
A business choosing to refinance is not necessarily in financial trouble, however there can be a risk of employees or the media getting the wrong end of the stick. This inevitably has an effect on areas pertinent to HR, such as employee morale, retention, and relationships with stakeholders. It may also be useful to know how the process is affecting the work of executive colleagues in communications or finance.
What do I need to know?
The most pressing concern for HR is communicating transparently to employees exactly what is going on. “The HRD needs to be crystal clear as to why the business is refinancing – is it because of opportunities to reduce interest rates to finance operational improvements or is it a sign of a business in distress that needs to reconfigure its debt structure in order to survive?” says Gaby Joyner, a director in Willis Towers Watson’s comms and change management consultancy team. “The latter could have fundamental implications for the workforce and messaging therefore needs to be managed very carefully.”
David Emanuel, chairman at solicitors Veale Wasbrough Vizard, emphasises the legal need to communicate clearly. “In some cases a refinancing might involve the transfer of business assets to a ‘Newco’. In these cases there are specific legal requirements under the TUPE legislation to consult with staff where their employer changes,” he says.
As well as making sure your internal comms are transparent and timely, consider how the rumour mill may be running. “Often forgotten is the need to make sure the narrative that is shared internally matches what is shared externally,” points out Shereen Daniels, head of HR at Caffè Nero. “Making sure the press, whether trade or otherwise, are reporting on the same narrative is key. Employees are savvy and information about organisations is readily available on the internet.”
“HR directors can play a key role in ensuring communications with staff are dealt with sympathetically and well, with planned meetings, Q&A sessions, and senior executives available to talk to employees,” adds Emanuel. “All this takes a lot of planning but is often left late as advisers concentrate on the legal documents.”
Where can HR add value?
“[Corporate refinancing] may open up opportunities to invest in the people side of the business, which is absolutely something that the HRD needs to be front and centre of,” highlights Joyner. “They may have the chance to develop a more progressive people strategy, for example acquisition of new talent or development of existing talent.”
It may be wise to consider HR areas that could benefit from a cash injection. Perhaps use the time the business is spending seeking a financier to design a business case to campaign for increased budget when it’s available.
Regardless of the reasons behind the refinancing, this isn’t an area HR can take a back seat on. “Our role can be to remind the business not to score any own goals. Public relations is often separate to HR but HR should take a strong interest and in some cases influence the message being conveyed to make sure that we can maintain trust with our employees,” states Daniels.
“A robust leadership and communication strategy needs to be in place to either build on the opportunities presented or mitigate the risks involved,” adds Joyner.