Contractors may find it harder to access finance as providers reassess risk in the wake of ISG’s collapse, sector experts have warned.
The £2.2bn-turnover firm – ranked 6th in the latest CN100 rankings – called in administrators from Ernst & Young last week. ISG’s UK operations ceased trading with “immediate effect”, with the loss of 2,200 jobs.
James Burgess, head of commercial at credit insurer Atradius, said ISG’s collapse “underscores the challenges the sector is facing, with insolvencies rising and confidence being tested”.
He warned that trade credit insurance premiums may increase, with ripple effects through supply chains.
“Access to funding may also tighten in the short term as lenders adjust to these changes,” he said. “However, companies with strong financial health could find themselves in a better market position.”
Burgess said his firm will continue to underwrite companies with “solid financial insight and planning to address any potential challenges”.
Kirsteen Milne, a partner in construction law at Brodies, said she would expect an insolvency of this scale to have an impact on the surety market, increasing premiums and contributing to a furthering hardening of the sector.
Milne added that it has become more difficult for construction firms to secure bonds over the past few years after recent large insolvencies including Henry, Buckingham and Readie.
She said: “ISG’s insolvency is likely to mean that bond providers will be exercising even more caution in deciding which companies they will provide bonds to and for what price (and any other financial diligence and security that may be required, as well as the usual counter indemnities).”
Nick Holloway, managing director at Interpath, said it was “inevitable” an insolvency of ISG’s scale would drive financial stakeholders to reconsider their position and appetite for risk.
“No doubt they will look at their exposures and decide whether they change their approach to the market or reprice for exposures going forward,” he said, adding that private equity firms or lenders that can choose where they deploy capital will likely reassess the risk profile of the whole construction sector.
Tony Derbyshire, head of managed repair at claims management firm Crawford & Company, added: “Insolvencies in the construction sector over the past three years have been severely on the increase. If I was a financier, I would be very nervous about entering that market.”
However, Laura Capper, head of construction at NatWest, said the industry had shown “resilience, grit and determination” despite the challenges it faced.
Capper said NatWest evaluates funding requests “on a case-by-case basis, taking into account each business’s unique circumstances”.
Other lenders CN contacted declined to comment, as they counted ISG as a client.
