£9.2m facility enables a hotel purchase through share acquisition
UTB’s Structured Finance division was approached by Dorothee Queyroux of Voltaire Financial representing an experienced property investor who had borrowed from the Bank several times since 2013.
The customer specialised in identifying and acquiring underperforming and under-valued hotels, adding value by improving their performance by way of refurbishment, management change or planning gain. Once improved he would sell the property on, occasionally retaining a small share of the equity for investment. The customer had recently completed the sale of a hotel for £36m which he had acquired just 12 months previously for £25m.
The borrower was one of several bidders for a well-regarded hotel in a popular tourist area and a swift decision and completion was vital to secure the opportunity. Two other potential lenders had also been approached and although they had responded positively to the initial proposal, they were unable to complete the deal within the borrower’s timescales.
The customer usually acquired properties using bridging finance due to its speed and then refinanced with longer term funding at a later date. The customer had transacted all previous borrowing with the Bank faultlessly and had an impeccable record of servicing and repaying his loans.
On this occasion however, the scenario was somewhat more complex. The hotel would be acquired by the purchase of 100% of the share capital of the SPV which owned the property. Transacting by this method provided a significant saving in stamp duty as it would be payable on the share purchase not a property purchase. UTB had been approached to provide circa £9.2m towards the share purchase with the majority of the funding supplied by UTB secured against the hotel itself
The team from UTB were given access to detailed accounts of the hotel plus the borrower’s projections for the next five years. The property was situated in a popular tourist area, had a good reputation, strong occupancy rates and had been profitable. However there had been some decline in turnover over the past two years and the borrower had identified that the average room rate achieved was significantly lower than similar establishments in the area. Increasing the room rate to a level commensurate with its peers would be the key to adding value plus there was some possibility for further planning gain within the grounds of the hotel. The borrower’s experience in the sector showed an excellent track record of success in both regards.
Representatives of UTB’s Structured Finance team met with the borrower and his broker at the Bank’s Moorgate offices to discuss the proposal and upon completion of due diligence the Bank released the circa £9.2m enabling the customer to complete the purchase.
Dorothee Queyroux of Voltaire Financial commented:
“Speed and flexibility were essential because of the very tight timescale. UTB’s structured finance team were instrumental in closing this transaction and managed to adapt the facility to a complex structure.”
Commenting on the unusual nature of the customer’s funding requirements, Gerard Morgan Jackson, Head of Structured Finance, said:
“Although trading hotels do not fall within the Banks typical lending parameters, in the Structured Finance team we are happy to consider all transactions. We look beyond the initial enquiry, spend time with the customer and get an in-depth knowledge of the proposal, the asset and their experience. We develop a full understanding and if we believe in the transaction and the client we will take it forward.
“Some lenders simply decline if the initial enquiry doesn’t exactly match their lending criteria. At UTB we believe in supporting our clients wherever possible. We look for reasons to provide a solution rather than not to. It is this approach that encourages experienced brokers like Dorothee to turn to us knowing that we will not let her or her client down.”