City scrambles as Trump’s trade war sends debt markets haywire
April 21, 2025
Donald Trump has spooked the debt markets.
By unleashing his trade war, the US president has rocked the global economy and forced lenders to pull up the drawbridge when doling out cash.
For debt-laden corporate borrowers already battling high interest rates, it couldn’t have come at a worse time.
As Tim Metzgen, head of Alvarez & Marsal’s debt advisory division, puts it, “there is an increased level of hesitancy” that is already pricing out UK businesses.
The volatility sparked by
Trump’s trade policies
has already made it “harder to access capital”, Metzgen added, as he warned that lenders are increasingly reluctant to lend money to firms at risk.
“What that means in practice is that for any borrower, there are more requests for information and more requests for diligence,” he says. “It means processes are more in-depth, taking longer, with no certainty around the deliverability of that finance at the end of it.”
For the most vulnerable firms burdened by huge debt piles, experts fear that the lack of access to capital could trigger bankruptcies.
The looming crisis has even prompted the
Government step in
, as Sir Keir Starmer has provided UK Export Finance with an extra £20bn worth of funding to provide loans for companies affected by tariffs.
‘Zombie companies’
Julie Palmer, a partner at Begbies Traynor, says that so-called “zombie companies loaded with unsustainable debt” are particularly at risk.
Such fears are particularly acute because large and medium-sized businesses typically pay their debts by taking out new loans, allowing them to free up cash.
However, companies blocked from borrowing more typically have to sell off assets or dip into their reserves in order to meet repayment deadlines. In cases where firms are unable to raise sufficient funds, restructuring experts are called in.
Boohoo, which rebranded as Debenhams last month, is just one example of a company
facing potentially significant debt pressures
. As well as being forced to navigate Trump’s tariffs, the retailer is also preparing to pay off a £125m revolving credit facility due in 2026.
More broadly, higher debt costs threaten to hinder British growth by limiting companies’ abilities to invest.
Those firms that generate a significant proportion of their sales in America are likely to be most exposed to the slowdown in the debt market, as lenders grow increasingly wary of their ability to repay.
The US trade levies have been announced after an array of leading FTSE 100 firms, including JD Sports and Rentokil, have pursued costly American expansions in recent years.
“The biggest issue is for the companies that straddle the Atlantic and have operations in the US as well as the UK,” Metzgen says.
Supply chains across the globe
Reckitt Benckiser
, which owns brands ranging from Dettol to Gaviscon, generates more than one third of its revenue in America, while relying on supply chains that stretch across the globe.
The consumer goods company has debts of more than £7bn, while it is also preparing to repay a €850m (£730m) loan due in 2026.
Reckitt Benckiser itself has outlined plans to reshape its supply chains in response to Trump’s tariffs.
In January, Shannon Eisenhardt, the company’s chief financial officer, told Bloomberg that Reckitt was considering increasing “the percentage of local manufacturing within the US” in response to America’s new levies.
Still, one source inside a US investment bank said Trump’s tariffs have, so far, had little real impact on Britain’s biggest businesses.
Instead, the sharpest impact is being felt at the bottom end of the market, particularly among small and medium-sized companies with high borrowings.
Mr Metzgen said smaller firms have already seen “big increases in diligence requirements” in the wake of Trump’s tariff announcements.
Ales Koutny, the head of international rates at Vanguard, adds that “the process of raising debt takes weeks from start to finish”, meaning any delays pose a significant threat to businesses that need urgent refinancing.
At the same time, companies that face looming debt deadlines risk facing significantly higher repayments once they refinance.
“We had days where yields have moved more than 30bps points,” Koutny said. “While this may seem small, it can change the calculations by hundreds of millions of pounds for large debt offerings.”
Raising new debt
Experts fear that companies operating in industries at risk from tariffs, such as manufacturing or pharmaceuticals, are also likely to face major struggles in raising new debt.
Alex Dugay, the head of Peel Hunt’s debt advisory business, said this will compound pressures that were already present post-Covid.
“All this tariff uncertainty has exacerbated trends which predate the tariff conversation back to Covid,” Dugay said.
“Companies were already finding it difficult to access credit pre-tariffs and this just adds an extra layer of scrutiny on their ability to go and raise credit.”
Such pessimistic predictions will no doubt sound the alarm for Britain’s biggest borrowers.
For UK Plc, the scramble to raise cash begins now.
Reckitt Benckiser and Debenhams declined to comment.
