London property refinancing to cover litigation fees

As an extremely well-connected mortgage broker, specialising in bespoke fundraisings, over the years we have been approached to raise funds for an array of different reasons. While not necessarily common, we have on occasion been given the task of raising funds to cover legal expenses and litigation fees. This in itself can be challenging because it suggests there may be financial challenges ahead and as a consequence, not all mortgage providers are keen to participate. When the property assets, company and ultimate beneficial owners are spread far and wide across the world this also brings into play a number of additional challenges.

While London is our head office, we have various offices across the world and experience in all major real estate markets. So, when we were approached by a client looking to refinance a London property owned by an offshore company where the ultimate beneficial owners were spread far and wide, we knew this would require a bespoke approach. As it turned out, under normal circumstances it would have been difficult if not near impossible to secure the funds required but we have very close relationships with numerous private banks we can call upon.

Client scenario

On this occasion, we were directly approached by the owners of an offshore company which owned a property in London worth approaching £10 million. The company was based offshore, the ultimate beneficial owners on different continents let alone different countries and they were in need of funds at relatively short notice. It turned out that the beneficial owners were fighting a legal action which could have significant financial consequences. Thankfully the London property only had a relatively small mortgage which would allow both a refinancing and additional capital raising. The idea was simple; the additional funds raised would cover litigation fees with the potential for legal action to drag on for some time.

Initially, it was hoped that a “traditional mortgage” could be secured against the property thereby creating a relatively long-term repayment plan. Unfortunately, as we began to delve deeper it became apparent that a “traditional mortgage” would be difficult if not impossible to secure especially in the relatively short timeframe available. We have a reputation for “thinking outside the box” which allowed us to use one of our many close banking relationships. As a consequence, we were able to secure funding on a short-term basis with the idea of refinancing 12 months down the line.

The basic scenario was as follows: –

Property: London based
Property value: Circa £10 million
Legal owner: Offshore company
Ultimate beneficial owners: Spread across two different continents
Reason for fundraising: Cover legal and litigation fees

The key to this fundraising was to leave sufficient headroom between funds raised, existing mortgage and the value of the property. Whether or not the client would need to come back at a later stage to raise additional funding, if legal expenses/litigation costs spiralled, was a topic of debate. However, in reality, this had no real impact on this fundraising which was clearly defined and would be asset-backed.

Issues to address

Even though we are more familiar with fundraisings to acquire property, refinance or perhaps improve business cash flow, we do from time to time come across situations where refinancing is required to fight legal action. In reality, specialist mortgage lenders are not overly concerned about how the funds will be used as long as there is sufficient collateral available and acceptable headroom between the value of the property and the funds raised/outstanding mortgage.

In the early days of a fundraising enquiry, we instigate a number of meetings in order to fully understand a client’s requirements and their financial scenario. This ensures that we can address any potential developments which could derail or delay fundraising further down the line. Aside from the legal action being taken against the company/client we knew from day one there would be issues with an overseas company with ultimate beneficial owners spread across two different continents. As a side note, some additional mortgage lenders may be apprehensive about becoming involved with individuals/companies caught up in what many would describe as a “financial scandal”. Thankfully, there are numerous private banks/niche lenders that work on simple facts and figures alone and tend to be removed from any emotive undertones.

The issues to address with this fundraising were as follows: –

Property location: London
Legal owner: Overseas company
Ultimate beneficial owners: Spread across two different continents
Reason for fundraising: Cover litigation fees
Timeframe: Immediately

It’s important to note that when considering fundraising we are only driven by a client’s financial scenario and definitive legal rulings. Just because a client had become embroiled in what many saw as a “financial scandal” doesn’t in any way make them guilty by association. Yes, there may be additional risks if funds are required further down the line but we work on facts and figures only. However, as we began to take deeper we knew we still had a challenge on our hands!

Solution

In our industry we tend to find that lenders have their basic criteria but as you build up a relationship, whether with a traditional bank, private bank or niche lender, they are quite happy to undertake “sensible conversations”. These tend to involve scenarios which are uncommon and may look relatively complicated from the outside looking in. However, the opportunity to sit down with a like-minded person and discuss the pros and cons of a fundraising plan regularly reaps rewards for our clients.

This particular client required funding immediately to finance litigation fees. After initial discussions with a trusted lender, it became apparent that a 12 month bridging loan would be the best solution. The idea was simple, after the 12 months the bridging loan would be refinanced or converted into a more traditional mortgage arrangement. However, the key was that the client will be able to obtain maximum funds on their London property to refill their legal warchest.

The broad details of the funding solution were as follows: –

Property value: Circa £10 million
Loan type: Bridging loan
Funds raised: Maximum (taking into account existing mortgage)
Interest rate: 0.99% per calendar month
LTV ratio: Maximum
Loan term: 12 months

It was fairly obvious from early discussions that this would not be standard fundraising. As a consequence of the company being registered overseas and the ultimate beneficial owners living on different continents, the client had no UK footprint. The company was also associated with an overseas “financial scandal” and the funds raised would be used to defend their name. One of the keys to this fundraising was the fact the property was London based, thereby regulated by UK laws, which gave the private bank lender an addition degree of insurance.

We know from our own experience these are scenarios that the majority of mortgage brokers would struggle to accommodate. As a consequence, the client was extremely happy with the speed of the transaction, funds raised and the competitive terms. Having already discussed the potential refinancing/switch to a traditional mortgage after the 12 month bridging loan term, this had the makings of a long-term relationship.

What can Enness do for you?

As we touched on above, we are regularly approached by overseas clients who operate on “complex financial landscapes”. We have a reputation for “thinking outside the box” and securing bespoke arrangements with the more complicated funding request. At the moment we have access to more than 300 global lenders and the fact that we have built up very personal and trusting relationships with many continues to pay huge dividends for our clients. This particular scenario led to us dealing directly with the CEO of a private bank. Our strong relationship with the individual and the bank allowed us to sit down and have a “sensible conversation” about the challenges faced. It is this ability to appreciate the wider picture as opposed to focusing on a very narrow narrative which ultimately led to the funding agreement.

In recent months we have seen a significant rise in the number of property refinancings/capital raisings. Much of this would seem to be a consequence of lower base rates and long-term opportunities in the worldwide real estate market. We have access to traditional banks, private banks and niche lenders which allows us to provide a number of alternatives for any funding requirements. Using real-time market rates you will be able to compare and contrast cash flow as well as short, medium and long-term financial liabilities. Even though we appreciate the need to maximise funding, this must be done in a controlled environment which does not overstretch a client’s finances.