Banks want to protect their debt for equity swaps investments and are using the equity to have a greater say in the hiring of chief operating officers and finance and HR directors. Before the credit crunch they restricted their involvement to the appointment of chief restructuring officers.
Doug Baird, managing director of Interim Partners said: “When a bank makes the commitment to a company by swapping debt for equity they rightly feel that they should participate as active and involved shareholders. That includes advising their investee company on where to beef-up management and boardroom resources.”
Debt-for-equity swaps activity has increased during the downturn and as a result banks have become more involved in an area of finance usually dominated by private equity firms.
“The absolute top priority for banks is still to get their debt paid down. Although banks haven’t become shareholders by choice they know that if they get the right senior team they maximise the chance of making those kind of returns,” Baird added.
“Before the credit crunch it was private equity investors who would be instructing interim search firms but now it is definitely the banks who are driving the changes. They are in there as investors and want to make the most of it.”
Foxtons became the latest high profile debt-for-equity swap this year when its owner, private equity firm BC Partners, ceded control of the firm to the banks in January.
Others that have struggled with debt include Independent News & Media, Samsonite, Jessops and Robert Dyas.
“Debt-for-equity swaps can potentially benefit both lender and borrowers,” said Bank of England official Andrew Haldane.