Refinancing from strength, not necessity
UK corporate net debt-to-earnings is near a twenty-year low. Balance sheets are healthier than the maturity-wall headlines suggest, and the advantage has a shelf life.
- Dated
- 20 June 2024
- Desk note
- Dated to the data
- Reading
- 6 min
Managing Director
The Bank of England put UK corporate net debt-to-earnings at about 120% in early 2023, its lowest in twenty years and almost 50 percentage points below the Covid peak. For most lower-mid-market businesses that balance sheet is the strongest bargaining position a borrower has had in a decade. The 2026 wall will be refinanced either way. The choice is whether to do it from strength or from necessity.
What do the aggregate leverage numbers actually say?
The Bank of England publishes two measures of UK corporate leverage, and both tell the same story. The net ratio (gross debt minus cash, divided by operating earnings) has been falling since its 2020 peak as earnings recovered and companies ran off Covid-era debt. By early 2023 it had reached approximately 120%, a twenty-year low. Profit growth outran debt accumulation; the improvement is structural.
UK corporate net leverage reached a 20-year low by early 2023. The pandemic bounce-back is done.
| Period | Net debt-to-earnings (%) |
|---|---|
| '19.9583333333333 | 135% |
| '20.9583333333333 | 168% |
| '21.9583333333333 | 150% |
| '22.9583333333333 | 135% |
| '23.2083333333333 | 120% |
- Net debt-to-earnings (gross debt minus cash, ÷ earnings)
UK corporate net debt-to-earnings ratio (gross debt minus cash, divided by operating earnings). The 2023 Q1 figure (~120%) is the Bank's own statement: 'its lowest point in the past 20 years'. The Covid-era peak (~168%) is the Bank's directional benchmark referenced across multiple FSR editions; the precise net-basis peak was not published as a stand-alone number in editions available by the post date and is marked illustrative. The earlier 2020 peak is gross-basis context.
Source · Bank of England, Financial Stability Report, July 2023 and December 2023
The gross ratio confirms the direction. In 2020 Q4, when pandemic borrowing had maxed out and earnings had collapsed, the gross debt-to-earnings ratio peaked at 345%. By mid-2023 the Bank put it at 276%, a fall of nearly 70 percentage points in three years. That is the Covid debt working its way through the system: partly repaid, and increasingly outgrown by recovering earnings.
Gross leverage is down 69 percentage points from the Covid peak. Structural improvement, not an accounting artefact.
| Period | Gross debt-to-earnings (%) |
|---|---|
| 2020 Q4 (peak) | 345% |
| 2021 | 330% |
| 2022 | 305% |
| 2023 Q2 | 276% |
- Gross debt-to-earnings at 2023 Q2
- Prior periods (peak and interpolated path)
UK corporate gross debt-to-earnings ratio. The Bank published two hard anchors: 345% at 2020 Q4 (the Covid-era peak) and 276% at 2023 Q2, a fall of 69 percentage points. Annual points between those anchors are straight-line interpolations and are marked illustrative.
Source · Bank of England, Financial Stability Report, December 2023
≈120%
UK corporate net debt-to-earnings ratio at 2023 Q1: the Bank of England's stated twenty-year low, down from a Covid-era peak of roughly 166–171%. The aggregate signals most UK companies are approaching 2026 maturities from a structurally sound position.
Source · Bank of England, Financial Stability Report, July 2023
Why does a twenty-year low matter to a CFO refinancing in 2026?
Because leverage determines how lenders compete. A borrower running below-average debt-to-EBITDA with solid interest cover is the profile every lender in the market wants on its book. Even the lender shortage of 2022, when availability contracted sharply and pricing jumped, re-priced the marginal credits rather than denying the good ones. A business approaching 2026 with modest leverage and earnings growth faces not the wall the headlines describe but a competitive market, which is a different problem entirely.
For many businesses the negotiating position is already in the balance sheet; there is nothing left to build. The work is to deploy it before it depreciates. And it depreciates the moment a maturity is twelve weeks away rather than twelve months.
The balance sheet is the advantage. The timing is the only thing that determines whether the borrower gets to use it.
What does the market look like for a borrower arriving early?
The lender market in mid-2024 has broadened substantially from any historical baseline. Challenger and specialist banks supply a majority of new bank lending to smaller UK businesses; private-credit funds have built a parallel pool of capital close to £60bn in outstanding UK stock. A borrower approaching renewal in 2024 with a clean credit story and a well-prepared process is meeting a field of capital that wants to lend, not one rationing itself.
The caveat is selectivity. Lenders in this market differentiate sharply. A borrower who arrives with a prepared information memorandum, a clear account of how the debt will be serviced and a realistic ask commands a competitive process. One who arrives with a folder of bank statements and a maturity date gets a take-it-or-leave-it. The underlying businesses may be comparable; the difference is what they bring to the meeting.
The aggregate leverage data covers UK corporates broadly, including large listed businesses that are not the lower-mid-market. A company at, say, 3x net debt-to-EBITDA with solid free-cash-flow conversion is well-positioned; one that drew the maximum Covid facility and has not yet meaningfully repaid may sit above the average. The starting point is your own numbers, not the sector mean.
How to convert a position of strength into better terms
A strong balance sheet is the entry ticket, not the deal. The terms a borrower secures (margin, covenant headroom, tenor, accordion rights, prepayment flexibility) are a function of how competitive the process is, not only of how healthy the credit is. A borrower with excellent leverage who goes to a single relationship lender and accepts the first term sheet has converted that strength into one data point. The same balance sheet, run through a structured process across five or six lenders, converts into a negotiation.
The 2026 maturity clock, for most lower-mid-market businesses, is ticking toward a moment of real bargaining power. Engage the market eighteen months out and you refinance from a position of choice; engage at six months and you refinance from necessity. The data on aggregate corporate health says choice is available to most. The market structure says it is worth using.
Questions a CFO asks
Common questions
- If my balance sheet is healthy, why do I need to think about refinancing now?
- Because the window to negotiate from strength is not the same as the window before maturity. A lender approached eighteen months out, on a business performing to plan, will compete for the mandate. A lender approached six weeks before maturity knows you have no alternative. The balance sheet is the advantage; the timing determines whether you can use it.
- Does the aggregate picture of low corporate leverage apply to my business?
- Not automatically. The Bank of England’s aggregate ratio covers the corporate sector broadly; a business that drew the full Covid facility and has not yet materially deleveraged sits above that average. The right test is your own net debt-to-EBITDA and interest cover against the lender’s underwriting model, not the sector mean. That is the number a lender will underwrite to, and the number to know before the conversation starts.
- What does refinancing from strength actually get me versus refinancing at maturity?
- Three things. First, choice of lender: approached early, you can run a competitive process across several counterparties and accept the best terms, rather than the only terms. Second, choice of structure: with time to spare, you can negotiate covenant headroom, tenor and accordion rights from a position of confidence. Third, optionality: if the first round of terms is not compelling, you can wait. Refinance at maturity and all three disappear.