Roel Capital’s Post

“Keep it simple” When you get into lending, you’re exposed to many different corporate and investment structures. When working for a lender, your primary role is to locate and analyse the sources of cash flow within these structures, particularly those residual cash flows available to service debt commitments. Then you consider, is this a ‘good’ transaction, or not? Should the bank lend, or not? Let me start by describing a ‘simple lending structure’. (i) Business owners have an operating company ‘OpCo’. (ii) OpCo is unlevered and owned by a spousal couple, beneficially through a discretionary trust. (iii) OpCo pays Director salaries to the owners and retains its profits. (iv) The couple have a strategy to grow an investment property portfolio. They approach lenders with the available sources of cash flow below: (a) Director wages; (b) Business profitability; and (c) Prospective rental cash flows. Now let’s describe a ‘complex’ lending structure: (i) OpCo is instead owned by a Holding Company ‘HoldCo’. (ii) OpCo distributes every dollar of profit to HoldCo. (iii) HoldCo then provides capital to a series of special purpose vehicles ‘SPVs’ which are entities established for the sole purpose of acquiring a single investment property each. (iv) The owners approach lenders and request borrowings via each of the SPVs. I’ll say nothing on tax and legal implications of each structure (and will leave that to the experts) but will ask this… - Have the available sources of cash flow changed in the transaction? - Has the proposed tangible collateral changed? A: No, they haven’t. I’m not against complexity, provided clients are well advised by relevant tax and legal experts. But complexity when simplicity will do, may be the wrong strategy… #complexlending #simplification #mortgagebroking #finance Anthony Nocon Roel Capital Note: This is general information only and has been prepared without taking into account your objectives, financial situation or needs. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.