Case Study No. 1
Recovery on PBL107 – Flat in Cheyne Gardens, London
This case study looks at how Lendy responds to protect investors when a loan runs into difficulty. Despite an experienced borrower, good underwriting, a sensible LTV and a very marketable property, it became apparent that securing repayment on the loan was likely to become challenging.
After giving the borrower extra time to repay, we appointed a receiver to the property, negotiated reduced fees from the sales agent, and secured a sale of the property. This resulted in full recovery of investors’ capital, accrued interest and bonus.
ORIGINAL SECURITY VALUE ORIGINAL LOAN VALUE LTV DUE DATE
£3,250,000 £2,120,304 65% 23 August 2017
Original purpose of Loan
The Borrower was a property management and real estate investment business, looking to release equity from a property to take advantage of a new market opportunity. The equity released was to be used to fund another project by the business.
The borrower planned to exit the Loan via refinance.
- The Loan facility was drawn down on 23 June 2016 with the Loan Term being 12 months to 23 June 2017.
- Regular contact was maintained with the Borrower throughout the term of the Loan. In March 2017 we contacted the Borrower’s Broker, who informed us that he had provided a number of offers of refinance to the Borrower, to provide an alternative if the security property was not sold in time to redeem the Loan.
- A ‘3 Months to Maturity Letter’ was sent to the Borrower in late March 2017. This requested an update on the Loan Exit Strategy and asked that the Borrower contact us immediately should there be any reason that might prevent the Loan being repaid on time.
A response was received from the Borrower in early April 2017, requesting a Redemption Statement, signalling the Borrower’s intention to redeem the Loan early.
- A ‘2 Months to Maturity Letter’ was sent to the Borrower in April. This requested an 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.
Subsequent to the ‘2 Months to Maturity’ Letter, we received a request from the Borrower’s Solicitor for an up to date Redemption Statement be provided to Lendy’s solicitors. This is standard in all Loans approaching the Loan Repayment Date.
- We received an update from the Borrower’s Broker in mid-May 2017, informing us that the Loan would be repaid on time and that the Loan was being refinanced via a third-party lender.
- A ‘1 Month to Maturity Letter’ was sent to the Borrower in late May 2017 together with an up to date Redemption Statement.
We also received an update from the Borrower’s Broker, who agreed to provide us with an update in relation to redemption of the Loan.
- A short time later, we were informed by the Borrower’s Broker that the Borrower was no longer seeking to refinance the Loan since an offer to purchase both the security and other properties had been received by the Borrower from a third-party.
- A ‘Formal Demand’ for payment was sent to the Borrower by both post and email at the end of May 2017. It demanded the 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.
The Formal Demand resulted in the Borrower asking for a 2 month Loan Extension. After negotiations took place, a 2 month Loan Extension was agreed with the Borrower, giving a new Loan Repayment Date of 23 August 2017.
- Lendy received payment of the Loan Extension interest in June 2017. This formalised the Loan Extension.
- We subsequently received an update from the Borrower’s Broker informing us that work on the Borrower’s property to allow for the sale of the same was going well.
- Email correspondence was sent by Lendy to the Borrower’s Broker in July 2017, seeking a further update in relation to redemption of the Loan. The Borrower’s Broker informed us that all was on course to clear the Loan.
- We were subsequently informed by the Borrower’s Broker, in mid-July that we could expect the Loan to be repaid in the following week.
- A ‘1 Month to Maturity Letter’ was sent to the Borrower in late July 2017.
- Over the following four weeks, there was two-way communication between Lendy and the Borrower (on occasion via the Borrower’s Solicitor and Broker) in relation to the approaching Loan Repayment Date. During this period, a demand for payment was sent to the Borrower.
In mid-August, the Borrower’s Broker asked whether we would be prepared to take a second charge Loan in relation to the outstanding balance. We were not prepared to agree to this, to which he responded that the Borrower was still on track to repay the Loan on time.
- On the day before the Loan Repayment Date, we received an update from the Borrower’s Solicitor, informing us that they were doing all they could to ensure that the Loan was repaid in the next few days.
- The Loan was not repaid on the Loan Repayment Date. The reason for this, as given by the Borrower, was that the new lender’s solicitor had requested from the Borrower a letter of good standing together with additional documentation. Lendy sought regular updates from the Borrower, who was attempting to resolve matters with the new lender’s Solicitor.
- Since matters were still not resolved, there was dialogue between Lendy and the Borrower’s Broker as to the possibility of a 1 month Loan Extension. The Borrower, however, was not in funds sufficient to pay advance interest and Loan Extension fees. At this point also, Lendy instructed agents to obtain a confirmatory updated valuation of the security property.
- We spoke with the Borrower in September, who informed us that they were some £1m short of the Loan Redemption figure. It became apparent that there would be little hope of achieving full repayment in the near future with default interest continuing to accrue on the Loan. In light of this, the decision was taken to start formal recovery proceedings.
- Lendy sent email correspondence to agents to enquire whether or not they were able to accept appointment as LPA Receiver (the ‘Receiver’) in the matter. Confirmation was received from the agent by Lendy that there was nothing to prevent their appointment.
- Subsequent to a review by Lendy’s Credit Committee, it was decided to appoint the Receiver in order to get the security property to auction at the earliest opportunity.
- In October 2017, Lendy received email correspondence from the Receiver with a proposed strategy. The Receiver proposed to allow the Borrower to proceed with sales of the security property, where the Borrower had already secured offers, under the close supervision of the Receiver. If that the Borrower failed to cooperate with the Receiver, the Receiver would look to take over the sales as Receiver and consider sale at auction should the sale become protracted or fall away.
- Whilst a sale of the security property had been agreed, the Sales Agent and Solicitor fees were deemed by the Receiver to be too high and might well have resulted in a shortfall of funds to repay the Loan. Lendy asked the Borrower if it would be prepared to pay its own fees. Since no agreement/co-operation was secured from the Borrower in this respect, in mid-November 2017, we were informed by the Receiver that they would be taking over sale of the security property.
- We then received an update from the Receiver that the Sales Agent was prepared to reduce its fee and advised that, in light of this, Lendy should accept the offer price of £2,625,000. With the sums achieved from the sale, we expected to be able to repay all capital, together with accrued interest and bonus accrual.
- A partial repayment of capital by the Borrower was received from our Receiver’s solicitor at the end of November 2017. This payment allowed for a partial repayment of capital to be made to the Loan Investors.
- Negotiations in relation to the sale of the remaining security property continued through December 2017. It was during the negotiations that a problem was identified in relation to some works that might have been required at the security property. The prospective purchaser sought an indemnity in respect of this.
In January 2018 however, the purchaser changed their mind in relation to the aforementioned indemnity and instead made a reduced offer of £2,550,000. We accepted their reduced offer following a review of the Receiver’s Estimated Outcome Statement to ensure we would receive sufficient funds to repay the outstanding Loan sums.
- In late January 2018, we received notification that the Borrower had been placed into Administration. It was confirmed to Lendy by the Receiver however, that the Borrower’s Administrators were happy for us to proceed with the sale of the security property. In light of this, the Receiver pressed on with the sale, completing in early February 2018.
The Loan was repaid on 6 February 2018. The full Loan capital was returned to Lendy’s investors together with full bonus accrual and accrued interest.