Brexit (and other risks): Have you done your planning?

United Kingdom

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

As the vote day looms, there are very few certainties. The only clear facts are the effects on sterling and stock markets now. Whether that is a response to Brexit or other factors, investors are clearly responding to heightened risk.

It was reported as recently as April that British business has not undertaken full contingency planning for a leave vote. It would be hard to ignore the views of economists and exposure to areas of risk now. Where investors had been searching for yield, the current flight to safe havens is likely to impact negatively on asset classes which represented a yield play, especially where they are in sterling. There are clear dangers for obvious sectors including construction (as 2008 demonstrated) and possibly, unlike 2008, certain parts of British manufacturing. In the possibly unlikely event that a depreciation in sterling did result in an increase in interest rates, there would be significant repercussions.

While it is very difficult to plan for the possibility of a changed legal environment (which as yet remains very unclear given enormous political uncertainty) it is advisable to do at least some level of risk planning. This should include the possibility of continuing currency instability and financial distress in certain sectors.

Olswang are offering risk management tools to support contingency planning over this period. These include:

  • For borrowers; review of covenants, where relaxations/ maturity extensions might be needed (e.g. commercial real estate, where investors might need to delay planned exits, UK borrowers under- hedged against currency/interest rate movements);
  • For lenders: assistance in responding to requests for waivers, review of hedging and security arrangements;
  • For business: High level contract audits to deal with counterparty insolvency risk;
  • For landlords, quick lessons on tenant insolvency.

Please speak to us if you are interested in these topics or any other practical support in risk management issues.