Case Study No. 2
PBL168 – Shoreham Cement Works
Even in cases where loans progress as expected, Lendy’s close monitoring of borrowers plays an important role in ensuring investors receive repayment of capital and interest in full and on time. At Lendy, we take nothing for granted, we stay in regular contact with borrowers, and are always prepared to undertake recovery action quickly if any problems arise. This case study looks at what the process involves.
ORIGINAL SECURITY VALUE ORIGINAL LOAN VALUE LTV DUE DATE
£12,000,000 £4,763,528 40% 6 April 2018
Original purpose of Loan
The Borrower was a limited company, operating as the holding company for a group of suppliers of aggregates and concrete, and providers of bulk excavation and haulage services.
The Borrower was exercising an option to purchase the site for £9 million, and the loan was provided to assist with the purchase. The Borrower negotiated a fixed price option a number of years prior to the Loan and since then the value had increased substantially. Whilst the loan represented 53% of the purchase price, it was less than 40% of the market value of the site.
The Borrower intended to either a) enter into a joint venture to develop the scheme or b) sell the site, once outline/detailed planning consent had been granted, to a national developer. Whilst the proposed loan term was 12 months, we were aware that the South Downs National Park Authority local plan was not scheduled to be adopted until July 2018. The Loan therefore, might have required an extension at maturity (which we were prepared to consider) or the Borrower would have to seek to refinance via another lender.
- The Loan facility was drawn down in April 2017 with the Loan Term being 12 months to April 2018.
- Correspondence was sent to the Borrower in early July 2017, seeking an update on progress of the Loan Exit Strategy. The Borrower responded, saying it was on course and that there were ongoing discussions with the local authority. The Borrower also informed Lendy that they were confident of being able to meet their obligations in relation to redeeming the Loan.
- In early January Lendy introduced their Portfolio and Debt Recovery Officers (‘PDROs’) and informed the Borrower that the PDROs would be contacting them shortly for an update on progress of the Borrower’s Loan Exit Strategy.
- A ‘3 Months to Maturity Letter’ was sent to the Borrower in January 2018, requesting an update in relation to the Loan Exit Strategy, and asking that the Borrower contact us immediately should there be any reason that might prevent the Loan being repaid on time.
The Borrower informed us that they were awaiting contact from a potential joint venture partner (JVP). The borrower informed us that they were attending a meeting with a third-party funder later in the week, in the event that they would have to look at refinancing the Loan.
The Borrower confirmed that discussions with the JVP were ongoing. The Borrower noted that a valuation in relation to refinance had taken place that week, with an agreement in principle having been made. The Borrower was expecting formal responses in relation to the proposed refinance in short order.
In February the Borrower informed Lendy that he had received confirmation of credit approval of the Loan refinancing over a 5-year term, subject to a fresh valuation of the security property that was underway at the time.
- The ‘2 Months to Maturity Letter’ was sent to the Borrower in February 2018. This requested a further update in relation to the Loan Exit Strategy and again asked that the Borrower contact us immediately should there be any reason that might prevent the Loan being repaid on time.
The Borrower provided a copy of a facility letter from the proposed new lender.
- The ‘1 Month to Maturity Letter’ was sent to the Borrower in March 2018.
Subsequent to the 1 Month to Maturity Letter being sent to the Borrower, we telephoned the Borrower to request a copy of Formal Credit Approval by the new lender, which the Borrower provided. We were therefore confident that we would achieve full Loan repayment by the Loan Repayment Date.
- A ‘Formal Demand’ for payment was sent to the Borrower by both post and email in late March. This is standard procedure on all Loans 2 weeks from the Loan Repayment Date. This correspondence formally demands repayment of the outstanding sums by the Loan Repayment Date and notes the recovery action that Lendy may take, without further notice to the Borrower, if payment is not made on or before the agreed Loan Repayment Date.
- Full repayment of all sums outstanding under the Loan Agreement was received by Lendy on 6 April 2018, with full repayment of capital subsequently being made to the Investors.
The Loan repaid in full on the Loan Repayment date with there being no requirement for formal recovery action. The Borrower obtained the funds for redemption via refinancing to another lender.
Notwithstanding the events noted in the Loan timeline above, there was regular contact/correspondence between Lendy and the Borrower from July 2017 up until the Loan was fully repaid. This ensured that we were kept up to date in relation to the Borrower’s Exit Strategy and any potential issues with the security property