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Johnston Press financing highlights difficult market

Troubled printing group Johnston Press has been forced into a debt refinancing program which was supported by Royal Bank of Scotland and Lloyds bank. However it has been revealed that the company will be borrowing funds at 20 times the current base rate in the UK which is approximately double the current rate the company was locked into. Without going into further detail about Johnston Press this is a prime example of the difficulties still being felt in the corporate market.

Despite the fact that many people believe the UK will be moving out of recession over the next few months it seems that UK banks are still not convinced that all is well. As a consequence, there has been a significant reduction in competition for refinancing deals such as that sought by Johnston Press, which has allowed rates to creep higher and higher.

The immediate problem for companies suffering cash flow issues or those who have broken their banking covenants is the fact that if they are lucky enough to receive a refinancing offer it is almost certain to be substantially higher than UK base rates and the rate at which they had previously borrowed. Whether this is caution or greed kicking into the UK banking sector is open to debate.

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