Non-bank lenders scramble to renegotiate loan terms

Non-bank lenders are frantically renegotiating loan terms with landlords to help them give breathing space to tenants that are unable to pay their rent due to the coronavirus crisis.

Market sources say alternative lenders are being flexible with struggling borrowers even though they are not regulated in the same way as banks, which were told by the Bank of England’s Prudential Regulation Authority last week to take a flexible approach with struggling borrowers and not apply normal accounting rules.

Debt funds and other alternative lenders are agreeing to interest payment holidays and deferring loan repayments for borrowers, many of whom have received significantly less rent than usual for the upcoming quarter.

Adam Buchler, co-founder of real estate debt adviser BBS Capital, said it was encountering a variety of scenarios. “The easiest conversations are when there is still enough cash to meet the debt service, but the interest cover covenants are in breach,” he said.

Buchler added that in such cases, the lender might be asked for a covenant waiver for, say, six months and that “lenders are being very accommodating” in this area.

“Sometimes capital repayment holidays will be requested, which is often relatively easy to give on the lender’s part. The most difficult conversation is when a landlord is unable to meet interest payments as this requires lenders to roll the interest up (postponing payment) and agree to a review the situation in three to six months’ time when hopefully tenants can pay again.”

An alternative lender added that it was not in anybody’s interest to take precipitous action in cases where borrowers can’t make payments. “We will be working collaboratively with our sponsors in those cases,” the lender said.

Another major non-bank lender said debt funds were well positioned because they were typically closed-ended and so not under pressure from investors to do anything that could undermine the value of their investments.

However, there is concern that without regulatory intervention, insurers may struggle to be flexible when lending from their matching adjustment books. Under current rules, they are given capital relief to match certain liability profiles and if they adjust loan terms and offer waivers, that capital relief is forfeited, which is very costly.

Neil Odom-Haslett, head of commercial real estate lending at Aberdeen Standard, said: “I’m sure the regulator will give guidance in due course, but for the time being, insurance lenders, lending via their matching adjustment book, have their hands not only tied, but handcuffed.”


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