Case Study - 17.07.2018

HOTEL FINANCING – Secured Private Loan

The securitization of a private loan unleashes the network effects of a family office

For the construction of a new hotel, the owner of a hotel group was seeking alternative financing options via a family office. Borrowing from a bank seemed too expensive to him and the CHF 15 million scale of the project was too small for the issue of a bond. Nor was there any question of a capital increase from the issue of shares. GenTwo’s proposal for the securitization of a private loan convinced him thanks to our flexible platform and the low costs possible even with the smallest volume. So the hotel group was able to borrow money inexpensively and without complications and the family office could allow its broader clientele to participate in a worthwhile project with a high rate of interest and property with security – a perfect match.

GenTwo formulated the comprehensive contract documentation in close collaboration with the family office. Then a loan contract between the issuing vehicle and the hotel group as the borrower governs the details of the finance. To secure this loan contract, a further contract concerning the collateral deposited in favor of the issuing vehicle was concluded. Lastly, the term sheet defines the payment terms of the note. This governs, in particular, the term, the exact match of coupon and interest payments, the perfect documentation of the collateral and the conditions applicable in the event of default on the loan.
The securitization and sale of a loan secured by collateral to several investors in this low price band are both new and exciting. Especially gratifying are the options for family offices, independent asset managers and private banks who can thereby make full use of their networks to be able to offer all groups of clients added value.

Private Debt Financing Case Study

Toni, what were the challenges with this project?
Toni: The project was new, really complex and extremely wide-ranging. Since we could not rely on any reference cases, we had to develop everything from scratch. Here it was the legal setting that took most time.

What exactly was your task?
Toni: As the Key Account Manager I was involved primarily in the structuring of the cashflows and in deriving the termsheet. Here the important thing was to derive the relevant points from the loan contract. One difficulty related to the coordination of coupon and interest payments. So for instance there always has to be sufficient cashflow available from the loan interest for the end customers to receive their coupons at the right time. At the same time, the balance sheet of the issuance vehicle always has to be reconciled.

What did you especially enjoy about this case?
Toni: It was fun to be right at the cutting edge with this pioneering project. I also like the character of this financial instrument since it doesn't just create dependencies as is usual with a loan transaction but rather synergies and allows many groups to benefit from it.

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