Restructuring finance for a thriving family country estate
Although you may think of agricultural lending as relating to farmers, it often also includes country estates. One such case involved providing restructuring finance to a family-owned estate.
The estate has a range of income sources that could be grouped into two categories: off-estate income which included businesses such as an estate agent, and land-based income which included farm tenancies and a horse stud. The horse stud was a newer estate diversification venture, and some of the restructuring finance would be used to invest in the stud facilities and auction centre IT system.
Why did the estate require restructuring finance?
The matriarch of the family was keen to support and guide the younger generation in their roles within the family estate businesses. The next generation of the family were each being supported in taking over the two sides of the business, with one grandchild taking over the off-estate businesses, and another running the stud.
The estate had a number of existing mortgages and loans which were predominantly against their residential properties. The family wanted to consolidate these loans and also free up some working capital to invest in the off-estate businesses and stud.
The stud produces thoroughbreds, predominately with the intention of being sold to the racing market. The family have worked to build on the excellent reputation of the stud by investing in new technologies such as foaling monitors and CCTV. They have also worked to grow their reputation outside the UK to protect themselves from a downturn in the UK market; this has included a number of recent sales to oversees buyers and yards.
Some of the funds would also be used towards fees for gaining planning permission and exploring development opportunities on some of the estate land, which already had interest from developers. This would also form part of their exit strategy for the loan.
How did UK Agricultural Finance deal with the complex income streams and multi-property security?
As is often the case with family-owned country estates, there were various different properties and income streams to consider when reviewing both the security of the loan and the affordability of the restructuring finance.
In this case, there were no less than 8 properties involved, alongside more than 4 income streams across multiple businesses and family members. Most high street finance providers struggle to cope with more than 2 income streams, let alone the number of separate properties for security. As such, high street lenders were not a realistic option for this family-owned estate. This is frequently the case for country estates across the UK.
However, at UK Agricultural Finance, this complex case didn’t cause any concerns for our experienced team. Our BDM, Sue, completed multiple site visits at various stages of the loan application and beyond. This hands-on approach allowed her to explain the case effectively to the credit control committee and underwriting team, which enabled us to ensure we could provide the most suitable loan options for this family.
Our BDMs always take time to complete site notes when considering the quality of an application. These notes help them explain the situation of the borrowers accurately to the rest of the team as part of the application process. Often these site notes are a couple of sides of A4. In this case, the notes were over 6 pages and totalled nearly 3000 words, which highlights the level of detail and effort made by our BDMs when meeting with borrowers.
Our due diligence revealed that the off-estate businesses, including the estate agents and chartered surveyors, were making a healthy profit. The profit from the established off-estate businesses would be able to support the loan repayments. During Covid, the family had taken one of their off-estate businesses from a high street business to an online offering with great success. A small portion of the loan was set aside to further invest in the IT systems of this business to continue this online success.
How did the family plan to exit the restructuring finance?
The family intended to sell some of their land for house building development. One area of land already had interest from developers and was sold subject to contracts. The sale of this land would allow the family to repay around 40% of the loan if needed, with further pieces of land being explored for development.
The pieces of land that had been considered for sale included those that were already on the outskirts of neighbouring settlements and of slightly lower quality as grazing or arable land. Also, some of these sites already had support from councils that saw the land as a good option to fulfil their district planning and housing strategies.
Additionally, there were a number of alternative exit strategy options should the sale of land for development not be successful for any reason. This included adapting some traditional farm buildings into holiday lets for additional income, or selling land as arable use, which it had been used for under farm tenancies previously.