Since the credit crisis loan covenants for Corporate, Property and SME borrowers have been under pressure.
Solvent restructurings are led by our Managing Director Jamie Davidson.
Recent success 1 - £10,100,000 property investment loan settled for £8,350,000. Clydesdale Bank / National Australia Bank were the banks who provided the facility secured by a portfolio of income producing residential and commercial properties. The facility went in to breach after the loan to value covenant was breached. The outcome was that the borrower retained the properties, avoided personal bankruptcy and ended the years of unwanted stress. Our advisory role saw us successfully negotiate the settlement on behalf of the borrower so they retained the assets and avoided their Personal Guarantee being enforced.
Recent success 2 - £6,000,000 loan facility settled £4,700,000. Our client was an Isle of Man based property company operated by a family. During the process it became clear that the borrower has been mis-sold a complex hedging instrument which gave us leverage but also complicated the process. The income from the high yielding portfolio was significant so retaining this and the prospective asset value growth were critical. Our advisory role was to negotiate the settlement terms to release the business from the bank after protracted litigation proved ineffective.
Downward movement in asset values, and a lack of liquidity for refinancing has resulted in many lenders holding unwanted loans and relationships in specialist teams. Retail bank EBITDA multiples and gearing are suppressed, so there is invariably an unmanageable capital hole that can’t be filled.
All of the retail banks have their own restructuring, or non-core, workout teams, and this is an area where we can provide specialist advisory support. Lloyds/Bank of Scotland's Business Support Unit (BSU), and the Royal Bank of Scotland's Global Restructuring Group are the two main work out teams in the UK.
The majority of retail bank lenders have sold their non-performing loans (NPL’s) to private equity buyers, with Cerberus, Kennedy Wilson and Lone Star being active in this area. Many of these unregulated lenders are known to us so their objectives, strategies and expectations can be managed accordingly.
The NPL buyers are invariably private equity funds capitalised by US, European or Asian pension funds and High Net Worth Individuals. As they have a defined human resource they utilise third party special services such as Pepper, Engage Commercial and Hudson. Interestingly these special servicers also have limited human resource so they are invariably slow to communicate which can be frustrating for the borrower.
Over the last three years we have helped borrowers secure debt forgiveness, drive the exit strategy, lead the negotiation and deliver new finance facilities that guarantee deliverability.
The process of restructuring can be emotionally demanding for the borrowers. We support clients by providing them with visibility of the process and finance options. Our role also covers the structuring of a strategy, and the delivery of the negotiation with the creditors be they a bank, joint venture lending partner or HMRC.
Recent successes have seen a residential property portfolio landlord, a family construction business and a hotelier all solvently restructured, and retain their assets so they can move on with their lives.
Time is a relevant factor as many disputes last for years.
On average we start and finish the process within 2-6 months of being introduced to the situation. Sometimes taking slightly longer to assess, structure and negotiate the exit can pay dividends.
We invariably work alongside litigators, insolvency practitioners, accountants, real estate solicitors and corporate solicitors to deliver solvent solutions for their clients.
Second wave insolvencies are becoming more common. These situations occur when an exit from a retail bank is completed but the terms of the finance used to exit are too onerous. The main factors are that the new gearing taken on is too high, so there is no cash buffer left in the business, or the new repayments are amortising too quickly so day to day cashflow is tight which jeopardises profitability.
We are active across a wide range of sectors as the fundamental problems are similar despite sectoral specifics.
The sectors that we have recently experienced success in include Leisure, Construction, Renewables and Property.
Leisure businesses have been heavily lent in to by both retail banks and Brewers so they are inevitably over geared against the back drop of a shift to food led patron demand.
The construction sector is going through a growth phase which, barring over trading, is positive albeit there are many mid to lower sized businesses still in need of de-gearing or restructuring their capital.
For Renewable Energy there are many due diligence requirements and government are incentives (interventions) that can create unexpected delays so income rarely lands when it's needed most.
Our objectives when acting for a client are to:
- Negotiate a reduction in the capital owed to a level that enables an exit.
- Negotiate the reduction and complete removal of Personal Guarantees.
- Negotiate a position that results in all assets being retained.
- Through mediation prevent any form of enforcement or insolvency.
- Source and structure new finance at high gearing or multiples.
- Source finance that ensures delivery of the exit is 100% guaranteed.
For a quick response during the working week, after hours, or at the weekend please contact Conduit Finance Managing Director Jamie Davidson on 07919 863 034 or Jamie@ConduitFinance.com.