National Car Parks is in administration – some big companies are so dependent on debt that they can’t adjust to change

When the UK’s biggest private car park company went into administration last month, some motorists might have been surprised. How could National Car Parks (NCP), a company that charged so much for parking, at so many prime sites across the country, run out of road?

Maybe it was down to a drop in commuters and high street shoppers after COVID? Or perhaps the firm suffered from too many long leases and the rise of new parking apps?

All of these reasons will have featured, but the deeper cause of NCP’s demise lies in the way it was financed. This was not simply a business undone by shifting travel habits – it was a business made dangerously fragile by debt.

Any company can suffer when demand falls. But a company carrying a heavy debt burden suffers differently, because the bill for past borrowing does not shrink when customers disappear. Interest still has to be paid and creditors rarely wait patiently for a market to recover.

NCP now looks like a textbook example of just how exposed firms can become when high borrowing meets rising costs and weaker cash flow.

By the time administrators were called in, NCP’s finances were already deeply impaired. Park24, its Japanese parent company, said that last September the company’s debts exceeded the value of its assets by around £305 million.

It later emerged that NCP had faced years of difficult trading and that parking demand had failed to return to pre-pandemic levels, especially in city centre and commuter locations.

In those circumstances, a business with a stronger balance sheet might have had time to close sites, renegotiate leases or absorb a few years of disappointing demand. But with huge debts, NCP no longer had those options. And once a company reaches the point where liabilities tower over assets, strategic choices become financial emergencies.

The roots of the problem go back further than COVID. NCP was bought and sold several times over the past two decades, passing through private equity firms, and gathering debt along the way, before it was sold in 2017 to Park24 and the Development Bank of Japan. So the debt burden of 2026 was not simply the product of recent trading weaknesses. It was, at least in part, an inheritance from an earlier ownership model.

This is the logic of what’s known as a “leveraged buyout”, where a company is bought largely with borrowed money, and the acquired company’s future cash flow is expected to service the debt.

A car park operator may once have looked well suited to that structure. It had assets, was geographically diverse and was supported by predictable demand. And debt is most manageable in businesses with stable and dependable cash flows. In principle, parking should have fitted the bill.

But the model depends on one crucial assumption – that the underlying business will keep generating sufficiently stable cash flow. If that assumption fails, debt can become a trap. And NCP’s stability turned out to be much more fragile than its financiers appear to have assumed.

From leverage to liability

The post-pandemic shift in commuting did not create NCP’s debt problem then, but it exposed it. Fewer people now travel into city centres five days a week, and online shopping has weakened some of the retail footfall that once helped sustain town-centre parking.

What made this fatal was that NCP’s revenues fell while many of its costs did not. The company had a high concentration of long-term, inflexible leases, meaning it could not simply walk away from loss-making sites or bring costs down in line with lower occupancy. Meanwhile, utilities, maintenance, staffing, business rates and structural upkeep all continued to cost more.

High energy costs, as well as high inflation left the business squeezed from both sides: less money coming in and stubbornly high costs going out.

Research shows that once a heavily indebted company begins to look shaky, debt becomes harder to refinance and more punishing to carry. And it’s not just NCP. Thames Water is another example of a company providing an everyday service which is weakened by huge debt.

At NCP, administrators will try to keep things going while they explore options. But whatever happens to that brand, it will not be the last British business pushed to the edge by debt.

The British Chambers of Commerce has already warned that the current conflict in the Middle East could push inflation up, while businesses in energy-intensive sectors are sufferering new cost pressures. For heavily indebted firms, that is exactly the kind of environment that turns vulnerability into collapse.

NCP’s failure, then, should not be dismissed as a quirky casualty of hybrid work or a changing market. It is also a warning about what happens when a business is so heavily loaded with debt that it loses the flexibility to respond when the world changes.

Erwei (David) Xiang does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.