The City grandee who chairs Aviva, the FTSE-100 insurer, is to spearhead a taskforce being set up to examine ways of recapitalising thousands of companies forced to take on huge debts to survive the coronavirus pandemic.
Sky News has learnt that Sir Adrian Montague is to chair a new working group assembled by TheCityUK, the financial and professional services trade association.
The so-called Recapitalisation Group is expected to play a critical role in formulating a way forward for businesses which emerge from the COVID-19 crisis saddled with debt.
Sir Adrian was picked for the role because he chairs TheCityUK’s leadership council, but his former job as chairman of 3i Group, the listed private equity investor, will be particularly valuable, according to banking sources.
3i was created after the Second World War as the Industrial and Commercial Finance Corporation to back small and medium-sized companies that could not access public equity markets.
Sources said on Friday that Omar Ali, EY’s financial services managing partner and chair of the trade body’s work on long-term competitiveness, would lead the technical aspects of the new group.
One insider pointed out that Sir Adrian and Mr Ali would draw on their network of relationships across banking, fintech, insurance and asset management – all of which would play a role in any recapitalisation plan.
The new working group is expected to evaluate whether the mass of companies which come out of the crisis with unsustainable debts require wholesale recalibration of their capital structures.
That could emerge in the form of equity which ranks above that of existing shareholders, retail bonds or another form of equity.
The scope of the working group will include both those which have utilised the government’s emergency aid programmes – such as the Coronavirus Business Interruption Loan Scheme (CBILS) – but will also encompass businesses that did not qualify or those which took on standard commercial loans.
Andrew Bailey, the Bank of England governor, has asked to be kept informed about the progress of the project.
People close to it said it was not an exercise to “bail out” struggling businesses.
“This work is about the future on the other side of this crisis, not rescuing companies during it,” said one.
Insiders pointed out that many of the business-owners which were being forced to borrow to see them through the crisis had never needed debt facilities before.
“There will be thousands of companies which come out of this drowning in debt, and that will leave huge scars,” said one.
“They will need an alternative solution, and that is what the working group wants to help with.”
Sources said a number of other trade bodies, including UK Finance, were also involved in the discussion about large-scale corporate recapitalisations.
Rishi Sunak, the chancellor, has launched several bailout initiatives to keep British industry alive during the pandemic.
The Covid Corporate Financing Facility has been set up to enable larger companies with an investment-grade credit rating to raise liquidity by selling their commercial paper to the Bank of England.
CBILS, meanwhile, is aimed at companies with a turnover of up to £45m, offering interest-free and fee-free loans from participating banks for the first 12 months.
A version of that scheme for businesses with sales of up to £500m is also expected to get off the ground this month.
The chancellor has also unveiled a job retention scheme enabling employers to ‘furlough’ their workers, with up to 80% of their wages paid by the state until the end of May.
There remain gaps, however, in the provision of emergency support, with large companies that do not have a credit rating – particularly in industries such as aviation and retail – complaining that they have been omitted from the Treasury’s thinking.
Many start-ups have bemoaned their exclusion from CBILS, because it is earmarked for ‘viable’ companies that were profitable before the coronavirus crisis.
TheCityUK, Aviva and EY declined to comment on Friday night.