Greybull and British Steel

The case for the defence of consensual distressed restructuring

Politicians will leap on the bandwagon to blame Greybull for the compulsory liquidation of British Steel and the potential loss of thousands of jobs, not to mention the demise of a strategically important supplier. But before joining the chorus attacking the entrepreneurial investor and its 2016 rescue let’s stand back and analyse what really caused the business failure. 

A steel works is a high fixed cost business with a high breakeven point and needs a stable market to survive. Changes to the global market caused by US/China tariff wars, high environmental costs, Chinese dumping and uncertainty of future supply from a UK supplier caused British Steel’s global customers to look elsewhere. It was not bad operational management, poor quality, nor exorbitant management fees, Greybull took out less than the previous owners, nor interest charges that sucked out cash, but a significantly changed international playing-field. Greybull were alone in taking the risk in 2016 to take on the business and give it a chance of survival. Onerous legacy costs were removed, and new capital invested, albeit priority secured. But it is not unusual for risk capital of this nature to be super priority. Indeed, this is the norm in Chapter 11 DIP funding or in rescue finance in other jurisdictions. 

Greybull took the risk when others wouldn’t, returned the business to small profit, and gave its workforce direction and a chance. It shouldn’t be castigated or tarred with the brush of failure caused primarily by global political decisions. Instead it should be thanked for the respite it gave and the opportunity for survival which in other more ordered times would quite possibly have been a long-term success. The government should also reflect on its own shortcomings; delays to changing Britain’s insolvency process to facilitate a moratorium without heavy Insolvency Practitioner involvement, which would have given a breathing space for a more orderly solution. Its time for Britain to catch up with global best practice in distressed restructuring and for the government to get on with supporting entrepreneurs and business in a competitive world. 

Alan Tilley – Chairman, BM&T

22nd May 2019