I recently worked with a client on the refinancing of their property portfolio. The portfolio encompassed both specially adapted and general residential accommodation, with a total of 37 properties across 3 companies. In the current market, this was not straightforward. There were various challenges, some specific to this portfolio and some more general. These included:

• The residential property company, a development vehicle which completed construction just after the housing market fell away, was over-borrowed in relation to the current value of the properties. Neither the resale or rental value of the properties supported the associated debt
• The principals wished to retain the residential properties through the bottom of the market
• The specially adapted property company, a long term investment, only had its financing committed for one year and needed greater security
• Valuations from surveyors were ultra-cautious, creating potential LTV issues even where cash flows were strong
• The principals were not prepared to commit further cash to the companies

We were pleased to achieve a successful refinancing of the portfolio. The key benefits of this were:

• Enable the retention of the residential property company through a restructuring of the borrowing
• Residential debt committed for 3 years with no capital repayments
• Specially adapted debt committed for 8 years with an effective amortisation period of 40 years
• No cash required from the principals – existing debts refinanced in full
• Personal guarantees avoided
• Increased confidence from the bank in the companies’ long term future

The companies are now on a much sounder footing, with an appropriate debt structure. The principals have been able to retain the residential properties, which are rented out at present, and intend to realise these gradually over time. This is a far superior to a “fire sale” in a slow market to recover money for the bank. The specially adapted properties carry an affordable level of debt and have security of funding for the next 8 years.

This example illustrates that while difficult, refinancing and restructuring debt is achievable in the current environment. We have significant experience of supporting clients through this process, both in property and trading businesses. If you would like to discuss a situation with us, please call us on 0141 243 4980.