Complex, Interest-Only Jersey Mortgage

contact

Key Figures:

• Client: Jersey Resident Individual
• Property Type: Country Mansion
• Property Value: £5,250,000
• Loan Amount: £3,150,000
• Interest Rate: 5-year, Interest only Mortgage, 1.80% + Base Rate

In this case, we were approached by a tech entrepreneur who was looking to purchase an iconic family home in Jersey. The client’s wealth was locked in a start-up they had founded a couple of years earlier. As is the case with most founders, our client had been reluctant to take unnecessary income from the business in its pivotal growth years. As a result, the client’s ‘real’ personal income was insufficient to secure the mortgage they wanted when it came to lenders assessing the transaction from a conventional underwriting perspective. We were looking at a 15x income multiple and annual income that did not support the loan interest.

The business operates as a Software-as-a-Service (SaaS) model, which means that the business’ services are paid for on a subscription basis. This annual recurring revenue (ARR) is extremely valuable but difficult to quantify. Essentially, SaaS businesses are valued at multiples of their ARR, which can be as high as 25 x ARR, depending on several variables. In their infancy, SaaS businesses often report negative EBITDA. Therefore even lenders who take account of a shareholder’s interest in a company’s profits can struggle with understanding and underwriting debt linked to these businesses.

Our client was approaching a capital event, and whilst this was going to enhance their wealth in cash terms, it wasn’t going to alter their income position materially in the short to medium term. The client intended to remain at the forefront of the business and push the growth strategy.

We knew this would be a challenging transaction to place. After educating ourselves on the client’s SaaS business, we needed to impart this knowledge effectively to our lending partners. Several lenders wanted to do the deal, with the caveat being that loan interest for the term must be deposited in cash with the bank. This is not a good use of funds for a conservative investor, let alone an entrepreneur with access to more lucrative opportunities, as was the case here.

Eventually, after months of explanation and negotiation, we met with a lending institution that had signalled their willingness to transact, perhaps without a large interest cover deposit. Our client was able to set out their plans to the lender in person concerning the target property and their business. The bank went away to consider lending, and within 48 hours, we had agreed on the terms mentioned above.

Our client was delighted with the result, given we had managed to deliver a one-of-a-kind financing solution that would have been impossible to arrange themselves. Our lender network and ability to understand and explain the client’s business and operating model to banks were critical elements in the successful arrangement of the loan. Our understanding of our client’s broader financial goals, especially their hesitation to deposit loan interest, was also of value. This approach meant we sourced the best financing option for the client in the context of their financial background and goals, rather than the easiest option to execute.