Debt Profile Management
DEBT PROFILE MANAGEMENT
A company’s non-financial managers should be involved in setting the target leverage level and implementing action that moves the company towards this target level, it is the responsibility of the finance director or treasurer to raise the external funds required for refinancing and growth. The leverage target should guide the choice between equity, debt and hybrid funding. For the debt capital requirements, management also should decide on the most appropriate debt profile (or debt portfolio).
Debt profile or debt portfolio is the mixture of different types of debt capital in a company’s total debt. For example:
• debt maturing at different times (in different years)
• Bank loans, bank facilities, commercial paper programs, bonds, etc.
• Debt in domestic currency and foreign currencies.
A company should try to ensure that its debt structure has a graduated maturity profile, with debts scheduled to mature at different times. When the debt profile shows a spread of debts maturing over a number of years, the company should be able to
• arrange an orderly refinancing program (to replace maturing debt), or
• Make sure that sufficient cash is available from other sources to retire the debts as they mature.
In contrast, if a company is faced with the redemption of a large proportion of its debts within a short space of time, the refinancing risk could be high. Without cash from other sources to repay the maturing debt, the company would be forced to enter refinancing negotiations with its bankers in order to raise new funds to meet its repayment obligations. A debt profile can be constructed showing
• how much debt finance the company has in place (a distinction can be made between utilized funds and unutilized facilities), and
• When the debt will mature.
The debt profile can be compared with planned funding requirements to establish what new borrowing will be needed over the next few years, either to replace maturing
A company’s non-financial managers should be involved in setting the target leverage level and implementing action that moves the company towards this target level, it is the responsibility of the finance director or treasurer to raise the external funds required for refinancing and growth. The leverage target should guide the choice between equity, debt and hybrid funding. For the debt capital requirements, management also should decide on the most appropriate debt profile (or debt portfolio).
Debt profile or debt portfolio is the mixture of different types of debt capital in a company’s total debt. For example:
• debt maturing at different times (in different years)
• Bank loans, bank facilities, commercial paper programs, bonds, etc.
• Debt in domestic currency and foreign currencies.
A company should try to ensure that its debt structure has a graduated maturity profile, with debts scheduled to mature at different times. When the debt profile shows a spread of debts maturing over a number of years, the company should be able to
• arrange an orderly refinancing program (to replace maturing debt), or
• Make sure that sufficient cash is available from other sources to retire the debts as they mature.
In contrast, if a company is faced with the redemption of a large proportion of its debts within a short space of time, the refinancing risk could be high. Without cash from other sources to repay the maturing debt, the company would be forced to enter refinancing negotiations with its bankers in order to raise new funds to meet its repayment obligations. A debt profile can be constructed showing
• how much debt finance the company has in place (a distinction can be made between utilized funds and unutilized facilities), and
• When the debt will mature.
The debt profile can be compared with planned funding requirements to establish what new borrowing will be needed over the next few years, either to replace maturing