Case Study 2 – PAYE Employee/Landlord


Who

Here our clients are a married couple both in PAYE employment and over a number of years accumulated 5 residential investment properties (RIPs’). The properties were acquired over a 10 year period and the last of which was acquired in 2006. The properties were in good locations and rented well even through the recession.

The Lending

All of the RIPs’ were acquired with mortgages ranging from 75% to 95% loan financing. Loan repayments included both interest and capital. The initial interest rates were very low “teaser rates” increasing after a 3-5 year period. At the time of the clients requesting our assistance some of the loans were going into arrears.

The Problem

Two problems arose initially. Firstly, as the recession took hold though the properties continued to be rented the rents began to fall and eventually fell by 35% from a high in 2007 to a low in 2011. The second problem was that the “teaser” interest rates began to run out and some of the loan interest was doubling. Sustaining mortgage payments became impossible. The clients began to use up savings and supplement the repayment shortfall from their salaries. This situation was not sustainable in the long term.

 

The NEO Plan

When we were engaged we reviewed all information and all loan documentation to ensure they were in order. After the review we contacted the banks in question, confirmed our appointment and immediately agreed reduced loan repayments until the completion of our review and presentation of a proposal to address the issues.

The Solution

We presented a detailed proposal which included property valuations, confirmation of income and a revised repayment schedule which included reduction in interest rates, warehousing of part of the debt and a partial disposal plan as and when the market conditions improved.

Timing

As with most of the debt restructuring cases they do not get resolved quickly. However, during the restructuring process the stress was taken completely from the clients and repayments were reduced (by agreement with the banks) to ensure they were sustainable while negotiations were ongoing. The whole process took seven months to complete and agree.

Case Study 1 – Family Business


Who

A family owned business employing over 40 people in the hospitality industry with a trading history over 60 years in Dublin. The business had been trading very successfully but like all other businesses in Ireland felt the deep effects of the recession over the past 4 years seeing its turnover drop by almost 50% during that time.

The Lending

During the good times the premises which the business has been run from was valued in excess of 7M. This valuation enabled the owners to draw down loans of 5m in order to complete refurbishment works and make other property purchases. During this time there was never a case for the level of lending on the basis of the business activity as the business profits could not sustain such a level of debt. The lending was done mostly on the basis of the existing property value and the assumption by everyone that the value would do nothing but increase.

The Problem

As the recession hit and business activity began to reduce the business had difficulties in servicing the massive debt. Because property prices were in free fall it was impossible to refinance even though the business was trading successfully. The loans began to go into arrears. The owners began to have discussions with their bankers but these were unsuccessful. They then appointed Neo Financial Solutions to represent them with their bankers.

The Neo Plan

The first thing our team did was to engage with the client and find out ALL of the relevant details and review ALL of the loan paperwork. After that we contacted the banks detailing our appointment and requesting all future contact regarding the clients loans would be done directly through us. This was the first step in reducing the stress for the client. We then advised the banks that we would be conducting a strategic review of the business including all assets and liabilities. This review would be presented to the bank with a proposal on moving forward with a sustainable restructuring proposal. We then set about conducting our review, making recommendations on all aspects of the business to improve efficient use of all cash flow including the recommendation of reducing loan repayments.

The Solution

We then set about developing a solution to the client’s debt burden by looking closely at what the client could sustain in terms of debt levels. We demonstrated to the bankers that the current level of debt was not sustainable and would bring the business down and with it any real possibility of the bank getting a reasonable return of its capital. We successfully agreed a significant write off of the bank debt (in excess of 50%), agreeing new loan terms for the remainder of the debt and keeping the family business alive.

Timing

Because restructuring can be complex and is for the most part involves some portion of write off from the lender it does take some time to complete and agree. This particular case study took 9 months from the time Neo was appointed to completion.  However, during this time the client was relieved from dealing with the banks on a daily basis and so was able to concentrate on running the business.