The Evolution of Highly Geared Private Debt

The Evolution of Highly Geared Private Debt

In both vanilla and also restructuring transactions private debt is playing a pivotal role in making transactions happen.  The use is broader than its name might suggest.  It spans both corporate and property borrowing, and can come from private individuals, family offices or from larger funds.

There is a global availability of private debt lending from a range of sources, all of whom are hungry for an upper single digit, or double digit return per annum.  There are a number of local, US, European and Asian funding lines currently active in the UK.  These lenders are active in London but the real margins they seek are accessible in the regions.

Their appetite and liquidity is driven by a number of macro reasons such as the contraction of
European and U.S retail bank’s balance sheets, and the lack of dividends and yield available from equities.

These lenders have several unique selling points, such as short reporting lines that enable quick decisions to be made, pan‐European appetite out of one main office, and their flexibility when structuring covenants.  

If their benefits were ranked then gearing would be number one, certainty and ability to quickly deliver as number two, and number three would be the repayment structures, which can be interest only, rolled up or back loaded.

Recent term sheets we have delivered include: 

• 75% loan to value (LTV) facility on a single tenant office investment acquisition, at a 6.00% rate with only 4 years remaining on the lease.
• 90% LTV for a well located commercial building refinance at an 8.00% rate, which was going through a Bank of Scotland Business Support Unit (BSU) restructuring.
• 75% LTV bridge finance facility at 1.00% per month, for a hotel and land site exit from Royal Bank of Scotland Global Restructuring (GRG).

Pricing can vary depending on the transaction, with the leanest rates from 4.00% per annum for well located property investment lending, up to 15.00% for infrastructure lending.  They invariably seek “make whole” provisions to ensure they get a fixed return.

Much like the rest of the UK property and corporate lending market, there is a brisk evolution happening.  Interest margins are being compressed and there is a gradual uptick in LTV’s, which leads to a direct correlation in increased risk.

The record high volumes of lending in 2015 look set to continue into 2016 and beyond. 

Jamie Davidson I Managing Director I 0131 564 0172

Search for private debt bridging options here: Property Finance Finder

www.ConduitFinance.com

Direct Lending Market Buoyant

The SME corporate finance debt landscape has changed significantly over the past 6 years. 

Old institutions have disappeared, or scaled back activity and in their place is a growing pool of liquidity managed by a large number of fund managers.  These direct lending funds now play a major role in sponsor led event financings, and will increasingly be relevant to private companies without a financial sponsor.

Find out how direct lending and private debt can accelerate the growth of your business here.

Contact Stu Donald on Stu@ConduitFinance.com to see if direct lending could accelerate the growth of your company or negate the need for other types of finance. 

5 Scottish companies to watch, that you (maybe) aren't watching.

Not a day goes by without Skyscanner or FanDuel getting a mention somewhere, and rightly so.  Their world class achievements stand out.  However, many successful Scottish businesses continue to flourish under the radar of most.

In absolutely no particular order, here’s our (not very definitive) list of 5 worth watching:

Brodies – whilst other Scottish law firms tried to outdo the competition with expansion to London, Brodies diversified and deliberately regional strategy has served them well.  Brodies were one of the only firms in the country in FY13 that managed to increase revenue by more than 10%, and profit per employee at the same time.  For a time and materials business model that has to invest in headcount ahead of the curve that can often be a difficult balance to strike for an already successful firm.

Peter Vardy – UK car sales were at a record high in 2014, 11% up on the prior year.  In this typically cyclical industry you would expect strong top line growth in the good times, but Peter Vardy has outshone the competition.  By one measure they are now the 4th largest motor dealership group in Scotland, and had fantastic 42.5% revenue growth in FY13.  The new Porsche centre in Aberdeen will have oil execs dreaming about returning to $100 per barrel.

Space Solutions – the workplace architects and design specialists have made a real name for themselves in understanding the needs of modern organisations, and combining how an organisation works, with the look and feel of the spaces they operate in.  Building the culture and the strategic objectives of an organisation into their designs, seems to be one of the main reasons behind their impressive client list.  Now with six offices across Scotland and London, and strong top line growth in FY13, we’re expecting to see more from Space Solutions in the coming years. 

Albert Bartlett – Established in 1948, Bartletts have very successfully created a brand out of a commodity, something few others have managed.  When other potato growers have taken to making handmade crisps or vodka as a way of extracting value add from the crop, the vertically integrated farm to supermarket model has stood Albert Bartlett in good stead.  If it’s good enough for Michel Roux Jr, then it’s good enough for us.

ECS – It’s tech, but IaaS rather than the more fashionable SaaS.  If you keep up to date with the Sunday Times Hiscox Tech Track 100, you’ll know that ECS has been in the top 50 two years in a row (ranked two places above Skyscanner in 2015), but if you don’t you might not of heard of them. Whilst they have grown up providing services to the banking and finance sector, they are now established across multiple end user markets, which should keep them in growth mode for the next few years.

Who’s on your 5 to watch list?

Stuart Donald
Conduit Corporate Finance
Stu@ConduitFinance.com

Team Update - Stuart Donald Joins Conduit Finance

Conduit Finance are pleased to announce Stuart Donald has joined our team to lead our Corporate Finance offering.

Stu joined Conduit in 2015 to help expand our capabilities in the complex corporate and SME space. 

With a track record of arranging and executing financings for MBOs, BIMBOs, Secondary buyouts and other event driven financings Stu has a broad experience of working with management teams to help deliver returns. 

Stu has previously worked for Citigroup, Deutsche Bank and Santander with diverse sector experience across:

• Healthcare, including facilities to support the acquisition of a portfolio of care homes by the UK’s largest care home operator and the refinance of a high street non-invasive cosmetic surgery group. 
• Technology, including the LBO of a SaaS Talent Management/ Talent Acquisition business and the restructure of psychometric testing business.
• Business services, including the BIMBO of the first transaction in the legal services sector and the restructure of a crash test dummy business. 
• Hospitality and leisure, including roll out facility for Europe’s largest fast casual Mexican burrito group, the refinancing of the UK’s fastest growing burger restaurant group and the refinancing of the UK's largest theatre group and subsequent expansion into Broadway.

More recently in 2014 and 2015 he has started his own ventures in online travel and restaurants, which gives him a unique perspective into the challenges faced by owner managed businesses. 

He has a BA (Hons) from Strathclyde University, an MSc from Edinburgh University and an MBA from Columbia Business School and London Business School. 

For further details please contact Stuart directly on Stu@ConduitFinance.com or call 0131 564 0172.