Creative Finance for Business Banks, bankrupt or just morally bankrupt? Richard Mason Martin Coyne

1. Creative Finance for Business Banks, bankrupt or just morally bankrupt? Richard Mason Martin Coyne www.ludgatefinance.co.uk

2. Ludgate Finance - Introduction • Offices in Wolverhampton, Birmingham, Coventry • Cover wider West Midlands • Set up in 2007 in conjunction with Poppleton & Appleby • Work independently in the finance industry • Spend all our time working in the finance arena • Richard Mason – NatWest, Venture Finance • Steve Grice – HSBC, BCRS • David Grocott – Lloyds TSB

3. What we do • Source finance for business • Working capital • Major and minor banks • Asset-based lenders • Property funding • Niche funders • Social funding • Non-bank lenders

4. Poppleton and Appleby • Changing marketplace… • Insolvency Practitioners(IP’s) now providing value added business advice services in niche areas:- • Interest rate hedging products • Negotiating payment plans with creditors • Securing Directors Loan Accounts with Private Debentures • Advising on appropriate funding for long term survival • We know you do not want to lose a client!

5. Current state of the market • There is a dilemma in the marketplace • Banks are being asked to increase capital bases and lend more money – these are not mutually compatible • Some banks are very clearly not open for business • e.g Co-op, Allied Irish

6. Are banks doing what they are being asked to do? • Funding for Lending • Helping businesses grow • Support for small businesses • Is there a ‘Perfect Storm’ – no capital growth for savers and no funds for borrowers?

7. Managing Expectations! When things return to normal………….. Clients wait for the day when the banks are back in business ‘like the good old days’, it will be a long time coming, if ever Expectations need to be addressed in terms of cost and availability of funding

8. Peer to Peer Lending P2P marketplace growing significantly – now being driven by availability of funds from investors/lenders – in response to the ‘Perfect Storm’ Funding Circle – loans of £160m in 4 years Thincats – loans of £42m in 3 years Assetz – loans of £8m in 1 year

9. Is there a market for it…….. Yes, it provides finance for those looking to borrow that don’t meet bank criteria and a return for those with funds (lenders) prepared to take some risk in return for a higher reward Dynamic marketplace with new entrants on a regular basis Regulation coming to ‘protect the consumer’

10. Typical deals Usually established, profitable businesses; the type thatbanks used to support! Generally requires good security– but we can be flexible by balancing risk and reward – ‘the 3 legged stool concept’ Loan range: from £50k to £1m+ This is NOT an alternative to equity funding, particularly for early stage businesses We look beyond the credit scores and take aflexible view of security and track record

11. Does it work? • As at 28 November, Ludgate has sponsored 87 loans raising £19 million, 64 P2P deals in the last 12 months • Largest deal - £950,000 • Smallest deal - £50,000 • Average interest rate of 10.33% • Quickest deal completed in 11 days • Regular referrals from accountants, bankers and other advisers • Leading ThinCats sponsor • Pipeline of 50 deals seeking £10 million

12. How can it help you? • Existing clients • ‘Difficult’ credit proposals • Quirky propositions • Security not sufficient for existing bank criteria • Enhanced income opportunities – management accounts and forecasts • New client relationships • Generate goodwill • Extract from existing advisers/bank – extra facilities • Place credit risk elsewhere & take income stream

13. What have we done? Leisure – gyms, restaurants and marquee hire Manufacturing – including tooling and development costs Software – intellectual property and website development Engineering – new machinery and premises Professional practices – accountants and IFA’s Construction related businesses – new contracts Import and export – trade finance Medical equipment Acquisitions and purchases Repaid banks Done deals that banks won’t do

14. Case studies

15. Savoir Faire Marquees Funding for asset purchase Traditional lenders not interested Quick decision allowed purchase Second loan subsequently took out incumbent lenders

16. Blackwood Investment Management IFA practice founded by very experienced management team Consolidated a number of existing practices £250,000 borrowed to acquire target practice Security: debentures and PG Interest rate 11%. Funded within seven days

17. ITC Limited • Banked with NatWest who was looking to exit relationship • Required repayment of loans and invoice finance, but still needed specialist working capital funding • £380K loan at fixed interest rate funded on ThinCats platform • Drawdown four working days after auction closed • Ludgate has raised a further £250k to cover specialist working capital needs

18. Q & A www.ludgatefinance.co.uk

19. Business Ethics in Question? Britain’s New Banking Scandal Martin Coyne www.ludgatefinance.co.uk

20. Interest-Rate Hedging Products (IRHP) • ‘Derivatives’ widely sold by Banks to business customers between 2002 – 2010 • In particular, heavily sold between 2006-2010 • Main types of IRHP’s are Swaps, Caps and Collars • Sold as an ‘insurance product’ that protected against rising rates.

21. Facts about mis-sold IRHP’s • Estimated that there are up to 100,000 businesses that have been mis-sold these products • Average claim size is £500,000 • Sectors particularly affected include: hoteliers, property businesses, nurseries, care homes, farmers, pubs and manufacturers – but it has affected ALL SECTORS! • Banks have provisioned around £3billion to date, but this could increase ten-fold!

23. How to spot IRHP’s • Usually there will be a separate document for the swap/hedging transaction to the underlying debt facility • Product will likely have been ‘sold’ by someone from the Banks Treasury Department • Business will have been paying high rates of interest (between 3.5 to 8%) at a time of historically low base rates • Huge break costs to exit the product

24. Businesses under threat? • Increasing number of Accountants advising us of clients affected by an IRHP • Clients face substantial exit fees or non-competitive rates to remain in the products • This legacy now threatens the viability of their business • Banks have agreed to prioritise cases where customers are in financial difficulty

25. The Review Process and Redress • Agreement between FCA and the Banks – it’s a secret! • Banks will contact customers to explain whether they ‘are considered sophisticated or not!’ • Banks will propose fair and reasonable redress – if not FCA will slap their ankles! • Redress:- Full Alternative product None Well that’s ok then ……………… isn’t it?

27. How you can help your clients • Establish whether your client has entered into one of these products • Ask whether they have received a letter from their bank; if not, should they have? • Arrange for the documentation to be assessed to ensure maximum compensation is calculated and claimed.

28. Ludgate can help you to help your clients • A team of advisors who are leading the way in challenging IRHP’s to break exit charges and seek compensation • More importantly, through negotiation rather than litigation • If necessary, Ludgate can help refinance away from existing arrangements • Provide letter templates for you to write to your clients to explain the problem and ways you can help