100% development finance for house builders

Newsletter: Finance Update - May 2021

In this months newsletter we discuss the following;

• Private equity deals in the real estate sector

• Yorkshires largest out of town pre-let

• Finance for office/hotel repositioning

• Ex-All Black converts 5 into 1

Hopefully you find the content interesting.

Please contact Fergus, Lee or Jamie if we can provide more information on the topics mentioned.

CBILS/CLBILS - what's your plan C?

Hopefully you and your family are well insulated from the virus. 

Across the market lenders are, in the main, being flexible. Thankfully, no repeat of the behaviours adopted during the GFC. Many of our clients have submitted, and had approved, interest and amortisation waivers for 1 if not 2 quarters and submitted a CBILS/CLBILS application to their primary bank. Covenants are being re-negotiated, facilities extended, and, in some cases, pricing revised upwards. 

During this unusual period, we are helping a range of clients, advisers and lenders across several sectors. Here is how we are supporting them; 
 
1) Providing advice to borrowers on what other lenders are providing by way of revised covenants. As interest and amortisation waivers are being agreed for the coming months and quarters, many loans are being re-profiled. You may end up with better short term cashflow covenants but tied in for longer at a higher interest cost. Are the terms offered suitable and are the terms you are being offered normal compared to other similar situations elsewhere? 
  
2) Helping businesses through the CLBILS and CBILS loan process with their current lenders. That can be creating models and cashflows or helping collate submission packs. We aren't seeing many “new to bank” applications being approved so the incumbent bank (be that lender or just bank account provider) is by far your best option. Thereafter you should 1) revise your application and re-submit it to your lender at a lower loan amount 2) review your best alternative product options (term debt v invoice discounting v asset finance v bridging finance) and then assess the capital type (debt v mezzanine v equity). Thereafter it's advisable that you approach lenders that are not on the Government schemes as an alternative.  
  
3) Providing advice on which types of finance and structures are currently attainable. After a review of 100+ capital providers, there were some clear movements with LTV/LTC's down on average 10% and pricing up anything from a few basis points to 30% of the previous rate/margin. EBITDA multipliers had also moved downwards. As expected, opportunistic and private equity led funds are more actively reaching out looking for opportunities. The middle risk/price section of the market is currently the most fertile place to be when seeking new debt finance. By submitting new deals to capital providers, we are getting a better feel for what’s PR and what’s deliverable.  
  
4) Raising finance to improve working capital. Most businesses have benefited from the various government support packages being provided so monthly cash burn has  eased. There will inevitably be an element of unavoidable cost running through businesses at this time as well as the costs associated with ramping up to full operational capacity once the lockdown is over. The options we are seeing work well here are:  

1. semi-secured small loans delivered under a Debenture or PG only  

2. refinancing of whole businesses out of prime debt in to more flexible & opportunistic facilities (higher EBITDA multiplier so creating more cash/firepower)  

3. mezzanine finance for both corporates groups/entities & property assets at an SPV level  

4. bridging finance secured by existing assets.   

5) Raising finance to help businesses capitalise on the market conditions. Some clients have been growing their businesses using a M&A based strategies. We have clients actively acquiring house builders & construction related businesses. If you are acquisitive then the obvious option is an equity partner, the alternative could feature more senior debt leverage and possibly some preference equity (pref). Pref looks more like debt despite being higher up the capital structure and helps maintain more control for existing management.  

6) Supporting lenders to recover their capital. During the GFC we worked with lenders to help them, and therefore their borrowers, repay loans quickly to avoid the loans being called up and security being enforced. Owing to our market perspective (debt/equity/mezz & active in both property and trading businesses) we are seeing the same service being of use to lenders this time round. 

Although there will undoubtedly be a period of uncertainty, the main issue at the moment is the frustration, and delays, associated with accessing the CLBILS / CBILS retail bank loans. Only a small proportion of lenders <10% have fully ceased lending so once the retail banks have worked through the applications then the alternative capital providers will become more active. CBILS/CLBILS lenders who can approve new to bank facilities will gain significant market share, there are early signs of who these lenders will be, and their actions will be confirmed by their results in May/June/July/August.  

Having a plan B and plan C is crucial as the Government schemes are helpful but they may not be able to support everyone. Once you have applied to your existing bank then we can help suggest an alternative so you have options. Once we get to September/October/November then the decisions made in April/May will be felt.  

Please  click here  to view of summary of different sectors and how we can assist you.  

Or you can learn more about Conduit Finance by clicking here www.ConduitFinance.com  
  
We continue to take stand side by side with our clients to help them navigate this unusual time. If we can help you then just let me know how.  

Regards 
Jamie 

Coronavirus Business Interruption Loan Scheme (CBILS) applications

How to package your CBILS loan application

Banks are currently receiving tens of thousands of applications so it’s essential that your application is concise & well presented. Lots of needless attachments or missing vital information will see your application overtaken by better presented cases.

We have collated feedback from each of the active banks on what they would like to see from borrowers submitting CBILS applications. Please find below some hopefully helpful information without any expectation or obligation.

There will no doubt be more information required depending on your circumstances, but this is the initial list of documents required.

Hopefully this helps you accelerate the process:

1. 6 months personal bank statements for each named director + 20%+ shareholders.

2. 6 months business bank statements for borrowing entity.

3. Management accounts ytd (inc. breakdown of salaries) for borrowing entity.

4. 3 years full unaudited accounts for borrowing entity.

5. 24 months financial projections (showing the servicing of rolled up payments) in excel.

6. Company profile document (strategy / market conditions / social impact).

7. Management team (CV’s and Statement of Assets, Liabilities, Income & Expenditure).

8. Security proposed (Company Debenture/Bond & Floating charge, Property security & any historic valuations / NAV commentary / asset cover etc.).

9. Serviceability calculations (DSCR inc. sensitised interest rates) to prove you could (prior to the pandemic) have been able to service the loan. Assume a 15-year loan at 6% to be realistic.  

10. COVID impact & CBILS viability statement (how is your business impacted? When will the pressure ease?).

11. COVID recovery statement (what are you doing now to ensure your business recovers?).

12. Alternative options review (have you already used furlough, rate relief, time to pay at HMRC).

13. Your loan requirement – Set this out in a very simple set of bullet points; Loan sum, loan purpose, borrowing entity name, loan term, security offered & repayment plan.   

If we can be of assistance to connect you with the best contact in a bank, then let us know.   

If you require some free advice on this or any other banking / finance matters (such a breach of covenants) then please contact me on Jamie@ConduitFinance.com or 07919 863 034.  

My colleagues are also available if I am not able to respond quickly;  

Jason     0741 100 2245     Jason@ConduitFinance.com      Corporate Finance & PE    Fergus    0791 734 0961     Fergus@ConduitFinance.com    SME & SPV Property Finance Debt  

Regards,  

Jamie Davidson  Managing Director  

Conduit Finance Q1 2020

Please take a look at our presentation HERE showing a summary of available products and case studies from 2019.

Deal Announcement: £50,000,000 private equity investment successfully raised

Deal Announcement: £80,000,000 Revolving Credit Facility (RCF) Closed

The Italian Job III, Friday 1 February 2019 - The Bill McLaren Foundation

Conduit Finance are delighted to once again support and sponsor The Italian Job III, a lunch with Scott Quinnell, Michael Lynach and Andy Nicol, in partnership with Boroughmuir RFC and The Bill McLaren Foundation.  This fantastic afternoon of rugby entertainment at Murrayfield supports the work of the foundation.

Scott Quinnell played over 50 times for Wales and turned out for the British & Irish Lions on their tours in 1997 and 2001.  He also played for his country at rugby league.

Michael Lynagh was the vice-captain of the Australia team that won the Word Cup in 1991 and in all, the stand-off earned 72 caps for his country scoring over 900 points.

Both men no work for Sky Sports as pundits and have their fingers on the pulse of everything that is going on in the modern game.

Andy Nicol has launched a successful broadcasting career since retiring from rugby and is a popular and successful compare at business and sporting events. Andy played 23 times for Scotland and captained the national team in the famous win in 2000 over the Auld Enemy which thwarted their Grand Slam ambitions that year.

The Bill McLaren Foundation
 Bill McLaren was a man who represented all that is best about rugby union. He was known as “The Voice of Rugby” not just because of the beauty of his tone and the delight of his imaginative phrasing, but because he portrayed our game as we would always wish it to be.
 
The Charitable Foundation was set up in March 2010 to raise funds to support the development of rugby and its values and also to recognise the contribution Bill McLaren made to rugby through education and the development of an interpretative centre including Bill's extensive archive including his big sheets.

The Foundation has been set up in Bill’s name, and with the support of his family. 

Stevie Douglas, the Boroughmuir rugby president, said: “We are delighted to work with the Bill McLaren Foundation again for this event.

“It is always great fun and the fact that lots of people have been asking me about it for the last few months, so they can secure tickets shows just how popular it has become.”

Alan Lawson from the Bill McLaren Foundation added: “This event has fast become one of the ‘must attend’ rugby functions around Six Nations time and we enjoy working with those at Boroughmuir to bring it together.

“The Italian Job III is shaping up nicely and I look forward to meeting rugby lovers from far and wide there.”

Jamie Davidson, the founder of the company, said: “We are proud to once again support such a fantastic cause. To be associated with a charity and an event that helps engage people with the spirit of rugby is very satisfying.

“The growth of the event in recent years had been exciting to see. We are looking forward to what will be another lively event that will help the Bill McLaren Foundation increase engagement in our special sport.”

Daily Business article

Please use the link to read the full article

https://dailybusinessgroup.co.uk/2018/10/souter-venture-raises-funds-for-wallyford-development/?utm_source=Daily+Business+Bulletin&utm_campaign=a4b844e022-EMAIL_CAMPAIGN_2018_10_18_02_53&utm_medium=email&utm_term=0_ec9725c7b8-a4b844e022-131915617

Completed transaction

SME Property Finance Presentation

To learn more about our services please refer to our presentation:

SME Property Finance Presentation

Perfect storm for Scots borrowers seeking alternative finance

Jamie Davidson, founder of debt advisory firm Conduit Finance and formerly of SME lending at Bank of Scotland and Clydesdale Bank, predicts a sea change for SMEs and commercial and residential property borrowers in Scotland, as alternative lenders look to offer reduced interest rates on their loans.  

In 2018, Mr Davidson believes that for the first time, loans from alternative lending schemes such as crowd funding, peer to peer lending and private debt, will be as cost competitive as the retail banks, blowing the finance market wide open for loans in the £500k to £10m range. This will be especially beneficial for commercial and unregulated residential property borrowers that have been turned down for credit by the retail banks.

Mr Davidson said: “Naturally, because alternative lenders such as Funding Circle, The Route and Folk to Folk are settling loans for higher Loan to Value (LTV) ranges (between 60-75%), they absorb the risk by charging higher interest on both short and medium term loans – currently between 6% to 12% pa. LTVs in retail banking property loans are settled at around 55% to 60%, but they offer lower loan costs of between 2.5% to 5%. This is all set to change in 2018 – with increased availability of finance for lenders, such as Innovative Finance ISAs (IFIsa), the cost of capital is set to fall and this will encourage alternative lenders to reduce their interest rates. 

In the future, it will be margins of risk that differentiate lenders, rather than the cost of borrowing. We won’t see lending flowed freely regardless of risk, as we did in 2005 and 2006, but it will be difficult to separate who is offering what and if an offering is competitive.  We’re also likely to see alternative lenders offering terms to individuals and businesses with higher LTVs, as they continue to look to differentiate themselves from the retail banks and their alternative finance competitors. Once non-retail bank LTV's hit 80% in 2018, then we are heading for a correction which will happen around 2021. 

The result is a more competitive and balanced financing market, as individuals and businesses have access to more cost competitive options outside of the banks. This is only going to be good for the wider economy, particularly smaller or new businesses that struggle for credit."

According to Mr Davidson, the trend of price competitive alternative finance will apply to many types of lending, including invoice discounting, asset finance, unsecured SME loans, property development finance and commercial mortgages. The move from alternative lenders is likely to be a major benefit for individuals and businesses that do not qualify for retail bank funding due to higher risk profiles.

However, Mr Davidson warns that banking regulation could check the reduction in loan costs offered by alternative lenders. He continues: “Offsetting the trend towards falling interest rates from alternative lenders, will be the increasing pressure that all regulated lenders have to comply with their ongoing obligations to the Prudential Regulation Authority (PRA) regarding capital adequacy - how much cash they need to set aside to cover any bad loans. In some quarters of the lender market, this will reduce the loan amount offered and increase interest rates. Retail banks are currently increasing pricing to ensure they meet their PRA obligations, this edged them up the pricing scale and closer to the alternative lenders."

Despite recent uncertainties, including Brexit and the triggering of Article 50, alternative lending has seen a sustained period of growth in recent years. For example, Peer-to-peer lending by volume reached over £100 million by the start of 2017 according to altfi (ref 1.). Bridging finance is also enjoying a period of positive growth in 2017.  According to the Association of Short Term Lenders’ (ASTL), bridging lender members reveal that the value of applications for bridging loans increased by 13.9% in Q1 this year, compared to the previous quarter; up 123% over the same quarter in 2016 (ref.2). This is good news considering slow growth in bridging finance in 2015, up just 1.2% in that year (ref.3).

Lending in the UK commercial property sector is also buoyant. According to the 2016 Year-End De Montfort Commercial Property Lending Report, while new lending was down by 17 per cent in 2016, compared to its post-crisis peak in 2015, the vote to leave the EU seems to have had minimal impact on new lending activity. Lenders originated £21.4bn in the first half of 2016 and a marginally higher £23.1bn in the second (ref 4.).

William Fleischmann- Allen, Head of alternative finance lender, The-Route Finance said: 

“2017 is a bit of a watershed year for alternative finance market – the launch of the Innovative Finance Isa for example, allows investors to deploy their tax free allowance with a more diverse risk appetite. This means that SME borrowers in need of funding will have greater access to investors who are willing to accept a higher risk. We’re also going to see a period of consolidation and cooperation, as smaller alternative lenders merge to offer optimum funding solutions for borrowers. This will ensure that lending opportunities are directed to the most appropriate funder, while both meeting the needs of UK businesses and filling the funding gap that the big banks have ignored for too long." 

Competition drives innovation, so as lenders fight it out, borrowers can expect to benefit from not only lower rates and higher LTVs, but creative new to market products. 

£3.3m Land Finance Loan Closed in 7 Days

Our Leeds based client had come under pressure from their investors. They had hit a cash flow hole, which was preventing them from building infrastructure to open the remainder of their 100+ unit site.  Investors were demanding progress, but cash was required.

We were presented by our client with a piece of land owned outright, at an original purchase price of £2,000,000.  We were asked if an over lend in relation to the purchase price was possible, planning had been gained and would provide an uplift in market value, demonstrated by a recent valuation instructed by our client.

Having identified three lenders that could work on a deal of this nature, we set about delivering the best possible terms within a tight time frame. We used a new to market lender, and raised £3,300,000 net within 7 working days from acceptance of heads.  The speed of the transaction was further improved as the lender used an existing valuation previously instructed by our client.  

Our clients said, “It is rare to have a lender and adviser exceed expectations.  On this occasion we have been happy not only with the nature and speed of the facility, but Conduit’s ability to adapt along the way with our interests coming first”.

Delivering new to market lenders is a constant part of our work. Having carefully assessed our client’s problem and suggesting a viable route, we were able to deliver a solution they thought unavailable in the market.  

We have recently launched planning consent finance from £25,000 to £150,000, for developers looking for additional capital to maximise opportunities and realise value from existing sites.

To enquire about capital raise against land or any other opportunities please do not hesitate to contact us.

Sean Crombie
Manager
M: 07595 520 577
DD: 0131 564 0172
E: sean@conduitfinance.com

Scotsman Interview: Conduit Finance MD Jamie Davidson

Our Managing Director Jamie Davidson was interviewed in the Scotsman, published on Monday 19th June 2017:

Read the full interview here: Monday Interview: Conduit Finance MD Jamie Davidson

Low rate finance and restructuring services for Hotels, Pubs and Restaurants

Today, many Scottish SME’s, especially those in the Hotel, Licensed Trade & Restaurant sectors may be having acute problems with their funding.  This will be negatively impacting on their ability to grow the business and in some instances, this pressure coupled with a lack of flexibility and liquidity, may be leading their life’s work towards an unwelcome termination.

 We see many business owners who are in a distressed space, have battled with their incumbent lender for some 7+ years, only to find that their debt has been sold onto one of the vulture funds with little or no warning.  This transfer of debt is typically done to free up capital on the lenders balance sheet and the sale of the debt is completed for a fraction of the original loan sum, normally in the range of 40p – 70p in the pound.

 The buyers of these corporate debts are mostly vulture funds and trade under the names Clipper Holdings, CarVal, Cerberus/Promontoria and are frequently managed by UK agents Engage Commercial who will deal with all borrower contact.  Once the loan has been acquired by the new fund they are known to apply vast amounts of pressure on the borrower in order to have the debt repaid and make their return on investment.  Their focus is on delivery of the maximum quantum, ideally seeking par repayment, with the quickest route to the realisation of that return. 

 A vulture fund has a single strategy – buy a loan at low price then have it repaid as quickly as possible for a higher amount, at the cost of the borrower, thus creating their profit and return for investors.  Where a refinance is not possible or the funders UK based representatives have lost patience or confidence in the borrower, they will not hesitate to take enforcement action.  This results in the borrower losing their business, perhaps their family home and being personally sequestrated.  The funder will then use the Personal Guarantee provided by the borrower to pursue them for any shortfall from what they have been able to recover vs. the outstanding debt amount.  This will happen whether the borrower, knowingly or not, signed up for a Personal Guarantee as part of the funding package when originally taking on the loan.

 Time factor is critical to these debt buyers in that, the longer they have the loan on their books, the less profit they are likely to make once refinanced.  Thus, the vulture funds pressure the borrower extremely aggressively at the beginning to repay their debt. Often borrowers are put into Administration extremely quickly if a repayment plan is not agreed in time or the borrower or repayment strategy lack credibility.

 From our experience the funds, while often pragmatic and keen to strike a deal, care little for the company owner or their family and the impact on the business performance and the borrowers health can be profound.

If you are prepared to think outside the box, there are many new banks out there that have a real desire to assist small businesses in a fairer, open and transparent way. Modernising the commercial lending industry, the new financing options enable transparency from the outset and can put finance in place within remarkable timescales. Pricing can get as low as 2.45%, up to 5 years interest only, over 25 year amortisation period, with loan to values exceeding in some cases 75%.

 Conduit Finance always act borrower side to counsel and provide guidance on the best strategy to enable a safe and solvent exit.  We call upon many previous transactions and utilise relationships forged with the incumbent funder to ensure the exit is credible and is supported to avert any form of insolvency event. 

 We take time and care to educate the borrower on the four potential outcomes so they are well briefed and prepared for what the future may hold.

“We found Conduit easy to deal with which is a breath of fresh air. This is the beginning of a long relationship for us.”

 To complete a deal often relies on creative thinking and unorthodox problem solving.  This covers both the raising of fresh capital to buy out the vulture fund and mediation to enable a deal to be struck that works for the borrower and funder.  To make this happen in the real world, an element of debt forgiveness may be required, as invariably the businesses are over geared due to poor lending practices by the Bank who originally provided the loan.

 A brief process overview of a transaction will involve us on day 1 relievingpressure from the borrower by fielding all forms of dialog between the two parties.  From there we negotiate with the funder to achieve an amicable settlement price and timeline, then enter into a standstill agreement.  During this time the funder is not able to enforce against the borrower offering some protection.  This is a gradual process and will take time, patience and consistency.  We are confident that in most cases we will be able to provide a solution to the borrower.  If required, we will source the market to pinpoint a new lender, be that a Challenger Bank, Peer-2-Peer lender or family office, so that the borrower can refinance their debt with confidence and pay off the vulture fund.

 2017 is a good year for borrowers with many new banks entering the market. Interest rates remain low and there is more flexibility regarding interest only repayment profiles and longer (20+ years) loan terms. 

If you are a Scottish SME business, particularly in the leisure industry, and find your debt has been sold on, then please get in touch. 

For borrowers seeking new finance we can provide real time interest rates and figures for your business from our panel of over 300 active lenders. 

Call Director, Mark Reidy, on 07775 678 087 or email Mark@ConduitFinance.com. 

Are you a housebuilder or developer looking to grow your business?

Housebuilders’ head office operational costs have invariably been funded by the business owners, project profits or third party investors.   Current market conditions favour housebuilders, but as ever it's about maximising the opportunity when it presents itself. 

Most development finance lenders allow a level of management team overhead to be run through the SPV cashflow, but it's usually not enough to fully fund a growing business. 

The availability of growth capital for this purpose has improved, and recently there have been individual investors and established private equity funds investing in this sector. 

Striking a balance between access to capital and maintaining control is key. 

These investments are being used by developers to open up new sites, amass land banks for a consistent pipeline, or to act as the equity needed to access cheap 60% LTC senior debt. 

It's also useful to be able to pre-fund a growth in full-time head count, to lead to more development activity. 

Investment amounts vary, from a few hundred thousand pounds, into the millions, with investment terms ranging from 1-5 years.  

Investor expectations consist of two components: 

1. An annual coupon or interest rate, which can be serviced monthly or rolled up.
2. Capital return, which can be an IRR or multiplier based model, depending on the profitability of the business. 

The investment partner doesn't have to be a friend for life, but just for a defined period. Ensuring that their role and input is clearly defined is crucial, as the primary role of the capital is to grow the business, not to run it. 

If this sounds like a means which could help you grow your business, then get in touch to discuss specific figures relative to your business, and your aspirations.

Jamie Davidson, Managing Director

07919 863 034
Jamie@ConduitFinance.com

Rise of non-performing loans bad for SMEs

Managing Director Jamie Davidson, of Conduit Finance recently wrote a piece for The Scotsman Business, on the Rise of non-performing loans, and the impact on SMEs.

Read the full article here at: Rise of non-performing loans bad for SMEs

Jamie is contactable both in and out of office hours, on jamie@conduitfinance.com or 07919 863 034