Understanding Aviation Lenders

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Aviation Finance Facts Part 2:

Understanding Aviation Lenders
There really is a method to the madness.

At Arc & Co., our primary function is to help our clients to structure and close aviation finance deals that work for them. A key part of facilitating the right structure is helping our clients understand and navigate the motivations of the lender on the other side of the table. When it comes to aviation finance, the main motivation for the lender on the other side of the table can be summed up as follows:

A lender’s primary concern is keeping his or her team’s licence to operate.

The funding that a lender uses to complete deals is not free. Every lender has to meet the expectations of the providers of that funding: it might be that they have to compete internally with other business units of their firm for access to their institution’s balance sheet; or externally for third-party investor funding; or a combination. The key point is that every lender needs to win, and continuously justify, the funding – and the mandate – to deploy against aviation assets. To do this, a lender must demonstrate to his or her funders an ability to put deals on the books that generate an attractive return, while keeping risk manageable. It is a critical balancing act: too risky, and the lender will lose credibility with the funders when things go wrong. Too risk-averse, and the lender will not be able to generate sufficient returns to compete.

What this means for clients seeking finance is this:

1. Your financing proposition needs to justify the lender’s time and effort

Lenders constantly weigh up the opportunity cost of their time: every minute that they spend on one deal is a minute that they cannot spend on another. Furthermore, there is a certain amount of effort that is required no matter how small the deal is. The reason that lenders will often dismiss outright an opportunity below a certain size, or in certain jurisdictions, is because they judge the time and effort involved is insufficient to justify the potential risk and/or return. This is where Arc & Co. can help: our knowledge, based on longstanding relationships across the industry, can help target your proposition to those lenders who are most likely to be interested, avoiding a waste of everyone’s time.

2. The earlier you can demonstrate commitment to and seriousness about a deal, the better

It follows then that lenders will strongly prefer potential clients that can demonstrate upfront that they have already done their homework and are ready to commit: they have identified the aircraft, they have placed a deposit, they have their financial documents ready to go, etc. Regardless of where you are in the process, Arc & Co. can assist you in assessing, firming and presenting your proposition so as to attract the most interest.

3. You must allow the lender to clearly evaluate your proposition’s risk

Each lender will have certain red lines; certain must-haves around their ability to properly assess and manage the risk of a deal. It is the reason that lenders require financial disclosure, proof of identity, details of a client’s source of wealth, and a full review of the asset: in order to satisfy themselves that they have a clear understanding of, and can manage, any credit and asset risk. Arc & Co. can act as your trusted partner, helping to ensure that you provide the right amount of information to facilitate the sensitive but necessary conversations around your deal.

To discuss your aviation finance needs, please contact Gary Crichlow.

Gary Crichlow
Arc & Co.
30 St. George Street, London W1S 2FH
Tel: +44 (0) 20 3205 2128
Mob: +44(0)7795 128041
Email: gary@arcandco.com
www.arcandco.com

Arc & Co. Secures Extra Time for Bridging Client

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Time was of the essence for Jamie Rigby of Arc & Co. to arrange mortgage funding on several houses for his client in Leicestershire. 

Jamie Rigby’s client had gained planning permission for several houses to be built within the extensive grounds of their current home. The client planned to sell the plots to a local builder, but when the builder pulled out of the deal at the last moment, this left Jamie’s client with a bridging loan that was about to expire.

“My client was concerned that he had to find another buyer within such a short space of time before his bridging finance ran out”, Jamie comments. “We needed to extricate my client from the bridging finance and secure some longer term funding. However, whilst still an active businessman, he was of pensionable age, which can often be a stumbling block to some lenders when looking at a more conventional lend.”  

Well aware that lenders can often be initially keen to do the deal yet change their mind further into the process, Jamie was keen to avoid such a situation given the short time frame before his client’s funding ran out.

“We worked closely with a smaller lender who was able to consider our case and work with the extensive due diligence we had prepared”, Jamie states. “We managed to obtain funding based on the strength of the client, which resulted in an additional 3 year term and at a rate of 2.99%”. The client was relieved, and this now allows the plots to be properly re-marketed for another buyer.

To arrange an appointment with Jamie at Arc & Co.’s Oxfordshire office please find his contact details below:

Jamie Rigby
Arc & Co. Private Client
Financial Consultant
Office: +44 (0) 1295 793170
Mob: +44 (0) 783 394 2392
Email: jamie@arcandco.com 

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Shared Ownership

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In 2018, the average UK tenant spent 52% of their disposable income on rent and with rental payments so high it makes saving for a deposit to purchase a flat or home very difficult.

There is however a scheme that provides an option for those who wish to own a property but do not have a large disposable income or savings. The Shared Ownership scheme allows applicants who are not able to currently afford to buy a property with the option to 'purchase' a share of a property whilst paying rent on the remainder. To be eligible for this scheme your household income must be £60,000 or less (£90,000 or less in London).  Also, you need to be approved by the Housing Association and often you can only buy in the borough that you currently live in.

An Example
You buy a 25% share in a £500,000 property for £125,000. Your deposit is linked to the value of your share of the property and would normally be 5%, so £6,250 in this example. You will then pay a mortgage on the amount of the property you own yourself along with rent on the remaining share, allowing you to build up some equity as the mortgage decreases and value (hopefully) increases.  You also have the option to staircase and purchase a greater share of the property overtime, allowing you to make larger contributions towards the mortgage as opposed to the rent and to own more of the property.  The rental and mortgage payments combined will generally be less than what you would pay for the full rent on the open market, and you will also have access to the equity that you have built up when you come to sell or remortgage.

The disadvantages of using this scheme is that you will generally be paying a maintenance or service charge on the full 100% of the property as opposed to just the share you own and these costs can be quite high. Also, since you are a tenant in law, you could lose the property if you are unable to keep up with rental payments. Not all lenders offer shared ownership mortgages, so it is a restricted market but you have to factor in the service charge and rent into your affordability – so if you have debt or childcare costs you might struggle to find a mortgage.

The Shared Ownership scheme is a great way for many to get onto the property ladder while becoming part owner of a more expensive property than you would otherwise be able to afford without this scheme.

If you are considering Shared Ownership or would like some advice on your options for a mortgage, please get in touch in touch with Alistair.

Alistair Hargreaves
Financial Consultant
Arc & Co.
30 St George Street, London, W1S 2FH
Office: +44 (0) 203 205 2129
Mobile: +44 (0) 796 750 9318
Email: alistair@arcandco.com

Choosing the Aircraft Deal that Works for You

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Over the next few weeks, our Aviation Finance Specialist, Gary Crichlow will be informing us about the ins and outs of aviation finance through a series of posts called Aviation Finance Facts

Part 1:

Choosing the aircraft deal that works for you

Look beyond the headline rate and monthly payment

A low quoted margin does not always mean you’re getting the best deal for your needs (sometimes it does, but not always). A higher quoted monthly payment may actually represent better value. Here are a few things to consider when determining the optimal deal:

  1. The overall cost of the financing package 

    Consider the financier’s reference base rate, not just the margin they quote. if you’re looking at a debt structure, consider how much equity you are being asked to put in or how much wealth you are being asked to place under management; what your balloon payment is at the back end; what the break costs are for terminating early, or what the options are to extend;  and how you will handle the responsibility of selling on a depreciating asset at maturity. If you are comparing it to an operating lease, consider whether the typically higher quoted monthly payment of an operating lease is worth the benefit of no upfront equity injection and the peace of mind of being able to hand the aircraft back at the end of the lease.  

 

2. The quality of the financier

 There are financiers and there are financiers. Closing a deal is not just about the rate, it is also about the process: is the financier responsive?  Is the financier sufficiently skilled in aviation finance to know what they are doing? Do they have procedures that organise all the expertise needed (legal, compliance, credit risk, technical, tax, and billing to name a few) to get the deal done efficiently? The ability to execute is key.

 

3. The overall cost of using the aircraft

The cost of financing is only one part of the costs that are inherent in using the aircraft. It is important to take into account the cost of managing and maintaining the aircraft, especially where the financing on offer is contingent on the aircraft being based in a certain location; being registered in a certain jurisdiction; being managed by a certain operator; or being enrolled on hourly maintenance programmes. A low-rate financing offer that demands a high-cost operation may not always be the optimal overall deal.

 

Aircraft financing is complex. At Arc & Co., we act as a trusted partner on our clients’ behalf, helping them to navigate the complexity, look beyond the headline quoted numbers and arrive at a deal that works best for them.

To discuss your aviation finance needs, please contact Gary Crichlow.

 Gary Crichlow
Arc & Co.
30 St. George Street, London W1S 2FH
Tel: +44 (0) 20 3205 2128
Mob: +44(0)7795 128041
Email: gary@arcandco.com
www.arcandco.com

Arc & Co. quickly secures mortgage for purchase of derelict Cotswold property

Time was of the essence for Jamie Rigby of Arc & Co. to arrange mortgage funding on a complex property in the Cotswolds. Jamie’s client had agreed to purchase a derelict property together with adjoining farmland, and there were pressures upon the client to complete the purchase quickly. 

“Derelict properties are difficult to fund due to a number of the larger mortgage lenders shying away from uninhabitable properties or properties with development risk”, Jamie comments on the scenario. “In this particular situation, the property also included an agricultural element and so was arguably mixed use, which can be another barrier for some lenders. Given the timing pressures in addition it was important to get our approach to a lender right first time, ensuring that all potential concerns were addressed prior to bank presentation”. 

Jamie’s excellent local professional relationships came in to their own. “Understanding the bank processes meant that I had to anticipate the hurdles leading up to a concrete mortgage offer. I worked closely with a local valuer, making a formal inspection of the property ahead of instruction” Jamie explains. “This meant that by the time the bank was able to formally instruct the valuer, a draft report was already prepared, shaving days off the lead time. The choice of Solicitor is paramount when deadlines are tight and so I introduced my client to a Solicitor who I knew would be able to handle the conveyance within the time-frame. All this meant that from the formal application we had a fully credit backed mortgage offer together with completed valuation report within 6 working days. For me, it really highlights the need have the right professionals on the job.”

The client was absolutely delighted with Jamie’s hard work, commenting “all professionals worked hard on our behalf but Jamie really was the driving force here”. 

To arrange an appointment with Jamie at Arc & Co.’s Oxfordshire office please find his contact details below:

Jamie Rigby
Arc & Co. Private Client
Financial Consultant
Office: +44 (0) 1295 793170
Mob: +44 (0) 783 394 2392
Email: jamie@arcandco.com 

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Arc & Co. Advise on the Finance of a Bombardier Global 5000

With a heritage dating back to the very first business jet, Bombardier Business Aircraft has at its core a forward looking, innovative spirit that is embodied by its people and the aircraft they have proudly manufactured, sold and supported over the last 50 years. It has been a pleasure to advise our client on the finance of a 10 year old Bombardier 5000. Despite the aircraft’s age, we were still able to arrange an asset only loan with no private bank connection. See below for an overview of the deal.

Client Location: Eastern Europe
Year: 2008
Loan: 10m USD
LTV: 75%
Term: 5 years
Amortisation: 50%
Ownership Structure: Maltese SPV
Rate: 4.25% all in
Deal structure: Asset only no Private bank connection

 stock image courtesy of Bombardier

stock image courtesy of Bombardier

If you require advice on an upcoming purchase please get in touch with Gary Crichlow on the details below:

Tel: +44 (0) 20 3205 2128
Mobile: +44 (0) 77 951 28041
Email: gary@arcandco.com

The Truth about Help to Buy?

The Help to Buy (Equity Loan) scheme is a government initiative created to help those who can only raise a small deposit towards buying a new build house or flat.  With Help to Buy, the Government lends you up to 20% of the cost of your newly built home, so you will only need a 5% cash deposit and a 75% mortgage to make up the rest. In London the maximum equity loan amount rises to a maximum of 40% of the property value meaning you only need a 55% mortgage. Since its introduction in 2013, Help to Buy has allowed 145,000 people to buy a new build house or flat.

So how does it work? In return for their loan, the government takes a stake in your property equivalent to the percentage contribution they have made.  The loan is interest free for the first 5 years but is subject to a management fee of £1 a month for the duration of the loan.

On the fifth anniversary of the loan, it is very important to note that your loan becomes eligible for interest payments at 1.75%. At first glance, that may not seem like much but since neither the management fee nor the interest fees are capital repayments, your loan amount does not decrease. Also, your loan amount will most likely have increased as it is linked to the value of your house. Therefore, after five years your loan amount might have increased along with the associated interest payments requiring you to review your finances to cover your loan payments.  

Before you start to worry, you have three ways to repay the loan. The first is simply to sell your property after 5 years, repay both the mortgage and the equity loan from the proceeds and use the remainder to fund the deposit for your next property purchase. The second is to re-mortgage the property and to use the additional funds to repay the loan thus financing the entire property in a traditional way. The final option is to make capital repayments on the loan either before interest fees are due reducing the amount of interest payable or after the 5 year anniversary until the loan is repaid in full.

Whichever method you chose, it is critical you obtain the right advice from your financial consultant before you commit to any mortgage or loan.  Our advisors at Arc & Co. have considerable experience in the Help to Buy scheme and will talk you through your options to make sure you have something in place to clear off the equity loan before you start to pay interest on it.

Let us help you future proof your mortgage.

If you are considering the Help to Buy scheme or would like some advice on your options for a mortgage, please get in touch in touch with Alistair.

Alistair has been in financial services since 2004. He started his career with RBS progressing to Santander then John Charcol before joining Arc & Co.in July 2017. Alistair specialises in complex cases, often involving multiple income streams, unusual properties or nonstandard personal situations. As well as providing quality, individual advice to his clients, Alistair prides himself on his customer service, economic understanding and industry knowledge. Throughout his career Alistair has built up strong relationships with underwriters at a number of smaller, bespoke lenders, allowing him to advise and find solutions for difficult cases.

Tel: +44 (0) 203 205 2129
Mob: +44 (0) 0796 750 9318
Email: alistair@arcandco.com

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Arc & Co.'s guide to buying your first home

Buying your first home can be daunting, especially with news reports about the increasing house prices and the restrictions on finding a mortgage. However, there are now many more ways available to you when buying your first house such as using family help, government schemes or buying with friends. 

Over the next few weeks, Alistair Hargreaves, a financial consultant at Arc & Co., will be writing a series of articles about the different ways that you can buy your first home. He will explain the advantages and disadvantages of the various options. These should help you decide which is the best option for you. The areas that will be covered are:

  1. Help to Buy

  2. Shared Ownership

  3. Joint Borrower/Sole Proprietor

  4. Family Mortgages

  5. Buying with Friends

If you require further information or advice about your situation then please don’t hesitate to contact Alistair on alistair@arcandco.com or +44 (0) 203 205 2129.

Gary Crichlow Joins Arc & Co. To Take Aviation Finance To New Heights

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Arc & Co. strengthen their Private Finance team with the addition of Gary Crichlow who specialises in aviation finance.  Gary holds a degree in Aeronautics & Astronautics from the Massachusetts Institute of Technology and has worked in aviation finance for the past 12 years. Having previously worked as the aviation asset manager at GE Capital and Lombard, Gary has a deep understanding of the aircraft financier world. He has handled numerous aircraft transactions, sitting at the nexus of technical, appraisal, operational, financial, tax and legal expertise to drive deals to completion. 

Andrew Robinson, Arc & Co. CEO, said of the addition ‘it’s a privilege to grow the team with someone who has the vast market experience such as Gary. He has first class aircraft asset knowledge and when combined with Arc & Co.’s financing skills it will provide real substance to our debt advisory platform’.

To get in touch with Gary to discuss a new or on going finance requirement use the contact details below.

Gary Crichlow

Arc & Co.
30 St. George Street, London W1S 2FH
Tel: +44 (0) 20 3205 2128
Mob: +44(0)7795 128041
Email: gary@arcandco.com
www.arcandco.com

The Budget, First Time Buyers and Help To Buy

With Brexit looming the Chancellor didn't have a much room for manoeuvre. However, as widely expected he has extended Help to Buy for a further two years, now ending in 2023. The policy has proved popular with home buyers, with 145,000 new build homes bought with the equity loan option from its inception in 2013 to March 2018. The policy allows a client to buy a new build house with the aid of a five year interest free equity loan. The loan is up to 20% in England and Wales and 40% in London. After five years, interest is charged on the loan.

House builders certainty like the policy and it has been accused of driving up prices. However it has helped a significant number of people to buy when they almost certainty would not be able to afford to.

The key thing to remember, if you plan on buying via Help to Buy, is how you are going to repay the equity loan after the five years; it could become very expensive as interest is charged on a potentially increasing loan amount (the level of loan is based on the current value of your property, not the amount borrowed).

The other key area that Philip Hammond delved into was extending the stamp duty holiday for first-time buyers purchasing shared equity properties up to £500,000. This on its own, I don't think, will encourage someone to buy a first home, but it’s a nice bonus for first time buyers who are scraping together a deposit.

So no new bells and whistles for people buying, but a huge sigh of relief for landlords as no further changes to tax for their portfolios have been announced.

Of course, dependent upon Brexit the above could all change.

 

If you would like to review your current mortgage, or if you are considering buying then please do not hesitate to contact Alistair using the details below.

Alistair Hargreaves
Financial Consultant

Tel: +44 (0) 203 205 2129
Mob: +44 (0) 0796 750 9318
Email: alistair@arcandco.com

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