A £85.5m full PIK senior secured development facility in London, 2013
Office tower development on the fringe of the City of London (Aldgate East); the current sponsors acquired the site in December 2010 and are using our development financing to complete the building. This transaction is expected to deliver mezzanine/equity type returns with a low risk senior debt position.
- No planning risk: freehold site with full planning consent on for c.314,700 sqft of Grade A office
- No archaeological/digging risk: all basement works complete before transaction, allowing construction completion within 23 months
- Construction risk: risk has been mitigated through a fixed price design and build contract with Brookfield Multiplex (covering full construction including the CAT A fit-out, key personnel designated within the contract and facility agreement). The contract offers three levels of guarantee: mother company co-obligor, 20% bond protection (genuinely enforceable performance bond) and that the majority of the construction costs will be fixed with third party sub-contractors shorty after signature of the loan
- Commercial risk: The key risk is not sourcing sufficient tenants at completion. Armat Group’s analysis shows that the likelihood of lenders of not recovering the principal is virtually nil and that the risk of not recouping capital plus interest is low, even in extreme circumstances
Key terms of the loan:
- Type of loan: development loan
- Type of real estate: office in the fringe of the City of London
- Interest rate: high teens
- Duration: up to three years
- Size: £85.5m
- Security: first ranking on the mortgage and shares of the borrower; no other material financial indebtedness
- Covenants: LTV covenant and other usual covenants for this type of loan (which the right to cure any default for the borrower)
Major eyewear manufacturer in China, 2008-2011
- Armat Group was the main investor, in 2008-2009, in a company that owned and operated three state-of-the-art optical and sunglasses frame manufacturing sites in China (Guangzhou province).
- An initial investment was made into new machinery and equipment. The company positioned itself as one of the main Chinese manufacturers in the outsourcing market for premium and luxury eyewear, providing industry leaders with high-quality products that complied with market standards of the top European and American luxury brands.
- The company was also highly appreciated for its flexibility and ability to address new design needs from the most demanding clients.
- The three plants covered the major frame production technologies: injection, cellulose acetate and metal frames. They employed a total of 4,000 people and produced more than six million frames in 2010, making them one of the world’s leading manufacturers of premium and luxury eyewear.
- The company’s specific advantage was their proven industrial quality and experience of servicing the top end of the market, combined with low cost and flexibility, in a socially responsible environment (certification SA8000).
- The strategy was to secure large OEM contracts with major western manufacturers and steadily increase their licensed brands while creating their own premium brands for the Chinese domestic market.
- The high levels of profitability earned from the core OEM business had been reinvested to execute this strategy: acquiring new equipment and creating new in-house brands to remain ahead of the competition both on the international and domestic markets.
- The investor brought key financing means during the crisis, enabling additional investments in new equipment to keep the quality and the flexibility at a world-class level.
- Armat Group used its business network to secure large distribution agreements and reinforce the company’s position with new licensed brands, showing its capacity to facilitate business opportunities between growing companies in emerging economies and leading industry players in developed countries.
- Three years after the initial investment, in 2011, Armat Group sold its shares in the company, which had reached its main goal set by the initial strategic plan.
- Since acquisition, the shareholders, had reinforced the company’s distribution networks in Europe, Asia and the Middle East and invested in machinery and design in order to be consistently ahead of competitors in terms of quality and flexibility. They secured large OEM contracts, developed their own licensed brand business and started their own in-house brand for the domestic Chinese market. They reinforced the company’s own marketing and sales capabilities and reached significantly improved levels of EBITDA margins. The company had exceeded the goals set forth for the exit and investors finally sold their majority stake in the company at an EBITDA multiple exceeding x10 with very high returns on their investment.