Financing Arrangements

Banks and financiers (and their borrowers) are operating in an environment where energy volatility is translating directly into heightened credit, counterparty and valuation risk. Disruption to supply chains, higher input costs and delivery delays are placing pressure on financing assumptions across energy‑exposed sectors, with impacts flowing through asset values, construction timetables and portfolio performance.

At the same time, borrowers are thinking about whether they need flexibility as conditions evolve, including adjustments to pricing, covenants and risk allocation. These dynamics are sharpening focus on how effectively price volatility is managed, how exposure is allocated and whether existing structures remain resilient under sustained stress.

Certain highly exposed borrowers are also seeking liquidity back-stop facilities from supportive lenders, in a similar vein to the facilities sought and provided during the COVID pandemic.

In this context, financing decisions require a careful balance of responsiveness and discipline. Early engagement, rigorous review of commitments and trigger events, and stress‑testing of assumptions, are essential to preserving integrity and relationships andpreserving long‑term value in uncertain conditions.

We are seeing delays in financing (development and project financing in particular) because of supply chain issues. Volatility in pricing is also disrupting financings as there is hesitation to risk manage long-term exposures (eg hedging) in the current environment.
Requests to revisit or adjust existing financing terms as conditions change.
Highly exposed borrowers considering seeking liquidity back-stop facilities from supporting lenders.
Implications for valuation, exits and investment timing are evident across nearly all markets.
Sectors ancillary to those directly impacted are now reviewing their exposure (through demand and supply chains) and considering impact on financing assumptions and modelling.

Consider whether financing arrangements include "material adverse effect" defaults, and whether engagement should be commenced with financiers to exclude current geopolitical risks (or waive the impact of current geopolitical risks) (for example, if there is likely to be material cost escalations which might otherwise be considered a material issue).
Consider whether rise and fall clauses in building contracts or potential material variations to building contracts or supply contracts should be pre-emptively raised with financiers.
If operating with limited headroom in financial covenants, consider raising proposed active management of cost escalations with financiers (and if necessary seeking temporary waivers (or increases) to financial covenants, while cost escalation works through the markets).
If your business is quite exposed to price shocks across transport, logistics, agribusiness, construction, consider having a conversation about putting in place backstop funding lines.

Review commitments to ensure an understanding of trigger events
Early engagement with financing parties
Financing assumptions which are facing pressure in the current environment (and test against covenants if downside continues)