3 April 2020 | Comment | Article by Dominic Marshall
Financing the hospitality and leisure sector through lockdown
The hospitality and leisure industries were some of the first businesses to suffer as a result of the COVID-19 Coronavirus outbreak in the UK, and have been particularly hard hit by the lockdowns. It is vital for businesses and lenders to work through the current crisis and in doing so, parties should consider the following:
- There is an obvious and urgent need for working capital in the hospitality industry. With hotels, stadiums, bars, restaurants, pubs, clubs and event centres closed, these businesses have lost revenue streams and many urgently need cash to meet their existing obligations. Meanwhile, other businesses in the industry are in need of cash injections to fund changes to their businesses – to increase production to supply supermarkets and institutions, to change breweries and distilleries to make other products in high demand and to diversify their offering. It is more important than ever to ensure that debt structures are appropriate and that loan and security documents are carefully drafted to meet the specific needs of the borrower/s and lender/s.
- Speed to market is vitally important – borrowers need cash now, and many will prefer a product that can be drawn quickly, from a lender who (together with their advisors) can guarantee quick access to lending facilities. Borrowers should also ensure that they appoint teams of professional advisors who are able to respond quickly to their needs and offer solutions to facilitate drawing loans in very short timeframes.
- Many businesses in the hospitality sector will be eager to take advantage of the government-backed loans, but has thought been given to how these will impact or be impacted by existing funding arrangements? Borrowers and lenders should seek specialist advice as to what consents or intercreditor arrangements may be required so that borrowers do not fall foul of their existing financing agreements. Consideration should also be given to how any new debt is to be repaid and to ensure that such repayment is permitted under the terms of any existing lending.
- A number of borrowers will be in breach of their funding agreements for various reasons: for failing to meet a payment obligation, for material changes to or cessation of their business, for breaches of financial covenants or under a material adverse change clause. It is useful to ensure that all potential breaches are addressed in one comprehensive document. We can help borrowers and lenders to identity all of the existing or likely breaches, and appropriately document any variations to existing terms – be that waivers, payment holidays, interest roll-ups or other changes. Remember that re-negotiating one facility may be a cross-default under the terms of funding provided by other lenders.
We routinely advise on structuring secured and unsecured debt and offer a wealth of sector experience to guide borrowers and lenders through these uncertain times. As a full-service law firm, Hugh James can also help with any other legal issues faced by the sector, including the negotiation and renegotiation of commercial contracts, insurance advice and help with employment law queries.
Find out more on our banking and finance page or contact Dominic Marshall on:
t: 029 2267 5324
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