In mid-January we were contacted by a business owner who was under pressure, he had been referred to us by a surveyor.
After many months of negotiations he had agreed terms to exit the Global Restructuring Group (GRG), of the Royal Bank of Scotland (RBS). Transactions of this nature are time pressured, and if the finance isn't delivered then an enforced sale, administration or liquidation awaits.
During the first call I was able to reassure the client with a high degree of confidence that we could deliver the finance and protect his business, as we had recently delivered a number of similar transactions. The experience my colleague Andy Lawson and I gathered whilst working in SME and Property banking also helped us structure and deliver a bespoke solution, which enabled us to solve the various issues.
The primary problem was that the funder he had terms from had pulled out, owing to a basic error in their valuation assumptions. The new lender wanted to lend off a 90-day assumption, which resulted in a far lower loan than if they were lending off a full open market valuation figure. The deal didn't work for the borrower, as it left him short of what was needed to settle the current loan and allow the business working capital to breathe.
We work with lenders who use this 90-day assumption, but it can be difficult to get the loan needed to match the loan offered, owing to the variable nature of the net loan sum versus the actual open market value. On this topic we always advocate engaging with surveyors earlier in the process than normal, to de-risk the valuation figures and to avoid last minute surprises.
The security in question consisted of a lucrative land site with planning consent for new houses, and a trading business in the leisure sector. The land had a simple valuation metric based on a value per plot, and a net land value after a work back from a gross development value. The leisure business was profitable, but was taken on a vacant possession basis as opposed to an EDITDA multiple, so a suppressed 90-day valuation off a 65% loan-to-value metric would result in a 50%-55% loan to open market value ratio. The assets were the product of many years of hard work, financial investment and marketing creativity, so their emotional value was almost equal to the financial value.
Our involvement was focused on the fund raising. The components were simple; we had a fixed net number to redeem RBS GRG, a working capital float to raise and the loan needed to cover all associated transactional costs plus the lenders interest and fees.
The scope was challenging and simple in equal measure, to deliver the finance in 4 weeks. This ruled out the vast number of lenders in the short term lending market, and despite what lenders purport, most are unable to deliver £6,000,000 of finance in this time frame. The asset class and exit strategy also did not fit with most lenders. Then finally, and crucially, we required a lender who was able to lend off an open market value figure, and not a 90-day valuation figure. Through our ongoing investment in lender research and our relationships with funders we were able to quickly, and with confidence, select a lender that would deliver.
Thereafter Andy Lawson worked closely with the borrower to quickly advance the documentation and lenders due diligence requirements. Starting at 7:30am and exchanging emails well past midnight Andy worked solely on this transaction from enquiry to close, including weekends. His role involved the coordination of all parties, including the lenders solicitor, the borrower’s solicitor, the valuer, and of course the lender themselves.
The primary value we added to the process was to deliver a lender who would act quickly. As crucial as lender sourcing is, just as important is the transactional support we provide to drive the deal forward quickly, whilst commercially navigating all obstacles. The legal process remains the main time delay in transactions, with the selection of solicitors being a key focus when preparing a deal plan.
On the 22nd of February the funds were remitted and the deal closed. After a short and intense sprint, the borrower was back in control of his assets and able to look to the future growth and profitability of his business, without the burden of potential insolvency.
Solvent restructuring is a specialist service we provide to borrowers and sponsors of Corporate and SME businesses, as well as developers and investors running property companies.
Our recent successes have been UK-wide and for businesses with £1m to £80m of debt and/or asset value, and we have experience in formulating strategies and delivering written down exits for Personal Guarantees. Our recent mandates are across a range of asset classes from Anaerobic Digestion plants in the Renewables sector, to Golf Courses and Hotels in the Leisure sector. Based in Edinburgh and active in London, we have also closed several cross border restructures for Isle of Man, Guernsey and British Virgin Island (BVI) companies.
If you, or your clients, are facing a restructure in the UK, or offshore, and need urgent, reliable finance options along with creative advisory services then contact Jamie Davidson at Conduit Finance.
Jamie Davidson I Managing Director I 0131 564 0172
Jamie@ConduitFinance.com
