PLAY BY THE RULES
It is imperative when seeking finance and refinance that several rules are adhered to:
Present worst-case scenarios
A well laid out business plan taking into account many of the above points. We have seen business plans that set out the various “alternative” scenarios, including worse case scenario of liquidations. The aim has been to show the financiers that not supporting a refinancing would, in the long-term, be the worst possible solution for all stakeholders in terms of asset destruction.
The key to some business plans is to show that as unpalatable as it may seem today, “hanging in” for the long term will result in the best return for the financier and owner alike. Refusing to assist in a refinancing could result in a fire sale, however, you must always remember that a solid business plan is still needed.
Research types of deals
Understanding of what type of deal you would like, for example; well researched between different lenders, banks and VCs — in many cases this could involve a change in equity shareholding which owners and shareholders may have to accept.
Best lawyers
Appoint the very best property lawyers available both to protect you and give advice particularly if they have previously been involved in similar situations.
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Balance sheet
Have an understanding of your balance sheet and an awareness of cash flow requirements in order to maintain business. This also means you need a clear understanding of future business trends which not all owners are aware of and should also be included in the business plan as financiers are looking closely at business plans to see that all scenarios have been considered.
Timelines
A clear idea of timelines and where the additional funds, if that is what is required, will be spent.
Familiar lenders
It is generally accepted that best terms will probably still come from familiar lenders or partners as very often they have a vested interest to make it work.
Documentation
Make sure that all documentation and paper work is readily available and in place.
Security
In some cases you must be ready for additional security requirements or requests for a cash injection in order to show commitment to the project you are undertaking.
Covenants
Ensure that financial covenants are realistic to make sure that technical breaches of loan documentation are not infringed.
Mike Scully has worked for some of the leading hotel management companies worldwide — Sun International, Holiday Inn, Accor and Starwood — as well as developing and managing properties for the Dubai Government. He is currently managing director of Seven Tides — Hospitality, which will be opening four luxury properties in Dubai within the next 12 months and which also owns Dukes Hotel in London.
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