#1000067 / 68 - Pub in Wales

I like ABL but this one's not for me - four years is a loooong time, even if one loan is amortizing.

Good Luck Peeps (And I'm not being facetious)   

And Good Luck with easily selling on the SM too when you want or need to!   

It's good to see how the three loans are going. Very wise to run the 10% loan first (note the loan numbers).

Response:

The valuation has been provided by a third party valuer with appropriate professional liability insurance and has been prepared on the basis of a multiple of forecast earnings.



Lenders are reminded that the tenant - being a subsidiary of B******* group - brings considerable credibility to the proposal through being part of a larger licensed trade group with a proven concept and business model. Furthermore, the management team behind B******** has also evidenced further, previous success in assembling a portfolio of profitable licensed trade premises / businesses, improving trade and efficiencies before effecting a trade sale at considerable financial gain. Thus, the business and management team behind the business both have a track record in the sector and as such bring substantial credibility to the proposition.



When considered on the basis of the most recent actual accounts for the FYE 31 August 2016 (showing a net profit of £86,839), either of the proposed loans are affordable in isolation. When the combined debt service costs of £141,904 (i.e. £60,000 + £81,904) are considered, there is a shortfall of c. £55,065 pa based on current earnings but full servicability is achieved against forecast earnings (from a credible operator). In circumstances where the underlying business is unable to finance the combined debt service costs of its own accord, we would expect the corporate and / or personal guarantors to subsidise any shortfall (noting the vested interest of both of these parties in the success of the borrower). However, we also anticipate the operator will increase turnover and profitability (in line with forecasts) so would anticipate that in practise, any actual shortfall would at least be in part mitigated by some form of uplift in profitability (and hence reduce the scale of any subsidy required from the corporate / personal guarantor).



It should also be noted that B********* intends to invest considerable further funds to finance the proposed refurbishment works (i.e. this will not all be financed by the funds raised through Ablrate). This impacts to improve the position of participating lenders by enhancing the value of the security further.



It is not the purpose of the credit report to provide a full financial analysis of the B********* finances. However, as detailed in previous reports featuring B******** subsidiaries / B********** guarantees, the group is undergoing a period of growth focused around the acquisition of new businesses / premises. As such, borrowing has increased as the group has rolled out its branded bar / restaurant and traditional licensed premises concepts in accordance with group corporate strategy. As such, both group borrowings and debt service costs have increased accordingly. Nonetheless, this still provides for a group net worth of £3m+.



The credit report highlights the potential concentration risk in relation to corporate guarantees pledged by B*********. Lenders are also reminded that all facilities provided to B********* and / or any subsidiary and / or any connected borrower via Ablrate are all performing to terms. No arrears or event of default has been seen and given a number of facilities are fully amortising, these loan balances have also reduced considerably since draw down.



In summary, whilst the valuation is based on forecast earnings, the tenant / counterparty can demonstrate a proven and profitable concept and strong track record in the sector. Lenders are being offered 1st / 2nd charge security and in addition, make weight security in the form of corporate and personal guarantees from counterparty's with substantial means. Lenders are being offered a return of 12% pa or 14% pa which under either option provides for a substantial return.

A slightly odd way of looking at it, IMHO. The prioritisation of the tranches is of no relevance "unless and until a default occurs". At that point, the 1st charge must be repaid in full before the 2nd gets a look-in. Were the 2nd charge loan to be Interest Only too then the risk on that tranche would be somewhat higher still, which ought to result in a yet higher rate. The scenario is no different to raising a second mortgage on your house; why would your main mortgage lender be bothered whether the second mortgage is Interest Only or Repayment basis? Either way, if he doesn't get paid then he's having your house.

For the 12% tranche I already have sufficient exposure to AH's pubs at this rate.

Just with the added security of recourse to SIPP assets and APF's assumption of first line credit risk too.

I must confess that I have made a small investment in this loan without reading the valuation, assuming that Ablrate would ensure that the value was realistic.

Because I spread my money widely in hundreds of loans I do not have time to read all the documentation and therefore rely on platforms to provide reliable figures, accepting that I will likely end up with the platform default percentage.

Having now read this valuation after reading the post above it seems to be no more than a guess about what a business might be worth one day if all goes well.   I had imagined that this was a loan backed by a property valued at one million pounds which is clearly not the case.

I will obviously have to be less trusting and either read everything or avoid loans of this type completely.