Going somewhat against consensus (& despite like
mrclondon holding a lot of this group’s offers on Assetz already) I am going to go into this loan.
Some things that haven’t been understood (imv):
The group behind this has a long history & despite being highly geared:
1. has been paying down its debts (from a heady
£102m in 2008) to the e/16 ~£23m (excluding the father’s £2m interest free loan)
2. It still seems to have the support of the Bank of Scotland, who appear to provide the majority of the debt funding at (if I have done the numbers correctly adjusting for the Assetz & Route Finance loans - nb there will be other alternative finance sources I have ignored, which would likely push the number even lower)
just 3.8% (in 2016). This is an excellent rate for a highly geared group & suggests strong confidence from BoS.
3. The group has repositioned itself with more restaurants / eatery type businesses in premium city centre locations, & so far has been able to service its debts (which is why it hasn’t gone bust despite running into trouble afaics in the post credit-crunch
a decade ago).
4. The alternative finance it has taken on can be seen to be a strength rather than a weakness (particularly given it still has mainstream banking support). This is fixed rate short term money (iirc previous mainstream lines were at rates that varied monthly, not great for business planning when you have large debt) that can be raised against specific assets. Not checked widely so please someone correct me but not aware of any defaults to date on these lines.
The assets they have used to raise this money appear to be those they are looking to dispose of (these 6 pubs & a long lease on one of Assetz’ loans in return for a shorter lease on one of their leading restaurants) & others where there is a big potential development uplift (the other 2 AC loans). In both cases alternative finance is more suited, & despite the higher headline costs means that the group’s total average borrowing rate (across all mainstream & alt/p2p creditors) ranged in 2014-16 between
5.8 ~ 6.85%, which is perfectly manageable for a viable business (& rather good imv for a highly-geared one). Tagging @bobo who raised this point.
5. There is no evidence to date of “sales by loan” practices & MT have confirmed that these pubs have not been marketed before-hand. Lending against these pubs we’re told has not increased (which aside from being something many p2p borrowers do with or without us being explicitly told when this happens, would be the likely take of someone looking to run off with your money) & the valuers have iirc made a major full revaluation of all the group’s assets recently (possibly made available to BoS too?) rather than some estate agent round the corner (or on the other side of the country) as is the case on other loans we asked to lend on.
6. From what I have read the family behind this group are widely liked & well-regarded. Always hard to judge people you don’t personally know, but there’s plenty of p2p borrowers I rate much less appetising (& this one of the reasons why I invested in their loans on Assetz). Aside from having built & successfully run a large enterprise employing hundreds of staff, donated to charities & sports teams, & generally being fully immersed in the Glasgow-Hamilton scenes (worth googling) these are folk that look likeable, committed to their business (can’t seem them jumping ship), & honour their debts. The mistakes afaics seem to have come from a likely undisciplined asset & land buying spree in the 90’s & noughties that left them exposed in the 08 credit crunch.
The problem this loan has (imo) is that it is a hard-sell to p2p lenders who generally don’t take the time (or have the skills) to look properly into a large group’s accounts & trading history, & are instead more easily swayed by a few (not great-looking) pics & the comments of posters here.
Summarising just some +ve points on this loan:
a. these are income producing assets (a rarity in p2p’s property development sometimes banana case world) with a DSC of 1.24x (ignoring group support)
b. it can/should be regarded to be an amortising loan (all proceeds from sales pay down the debt)
c. there are no further tranches / possible funding stall-points
d. the group’s CG has to be worth something (how you value will depend but maybe the fact the group is still in business after many decades & the sum we’re lending is a trivial part of their asset portfolio suggests they’re likely to be able to honour it before going bust in the next 18M, & would be plain daft to look for a loan by sale for relative peanuts)
For further reassurance AC seem to have faith in these folk. The loans there are still being bought by the GBBA (don’t recall this happening on other overdue loans) & they’ve always been sought after (despite their relatively large size).
As with all p2p / 12% lending there will be risks, but for a stake in income-producing assets backed by a group with a long proven trading history there are many worse offers there. Don’t like making predictions but here I’ll punt that in a few months time these will be sought-after (maybe never available) loans from folk fleeing the property development frenzy.
tagging @magenta14 who provided useful info, & might be interested in a different view