Syndicated bank facility
Ab Shome, Consultant, United Kingdom
FAF International, through its UK operation, First Title Insurance plc was recently approached by a leading European Commercial lender that was looking to enter an existing syndicated bank facility in the UK.
Originally in 2001, a number of UK banks entered into a facility against a portfolio of several hundred commercial properties located in England, Scotland and Wales for a leading property company. The security comprised fixed and floating charges, which the security trustee would register at the Land Registry and Companies House following completion.
A European lender was looking to acquire a portion of this syndicated facility, as a new member of the syndicate.
Clearly as existing lenders, the original syndicate banks, were happy with the security and simply required finance documents to be refreshed to encompass the revised loan amounts and renewed covenants. The new bank therefore had the option of accepting the existing security documentation or undertaking renewed title due diligence. Due to time constraints and more importantly cost implications this was obviously not a viable option. As a result of the high-profile purchase of Dawney Day's UK portfolio of 221 commercial assets, the bank's lawyers were aware that FAF International could provide an insurance policy tailored for this transaction, to satisfy the bank's requirements, with minimal impact on the existing syndicate.
Details of the properties over which the loan was to be secured were provided and FAF International undertook its own due diligence exercise on a sample, incorporating a spread of the highest value properties and all the holding companies.
As our indemnity is based on loss rather than (as with normal professional indemnity cover) fault, we were able to take a commercial view of the quality of the portfolio. Our intention was to produce a solution that saved time and money without compromising security. Working closely with the lawyers we negotiated and agreed bespoke policy wording, which met all of the lender's requirements within a matter of days.
The policy provided cover for any legal ownership defect (whether identified during due diligence or not) that cause the bank a financial loss, including technical legal ownership defects which allow another person to refuse to perform a lease, complete a contract to purchase or take a mortgage. The policy also insured the quality of the existing security documentation, insuring that the new bank had a valid and enforceable mortgage security which had the expected priority against other secured borrowing. Additionally we were able to save the bank the costs of undertaking local authority searches on each of the properties by insuring loss or damage caused as a result of any adverse circumstance which would have been disclosed had a full search been undertaken.
In addition to the significant advantage gained in terms of speed and cost, the policy also gives a clear transfer of risk with a simpler route to compensation - all our policies oblige the insurer to provide a defence against challenge to the insured interest without extra cost.
When the portfolio approach is combined with specific cover for known risks, FAF International's insurance can provide a solution that allows financially attractive deals to complete on time, or simply to complete where title problems might otherwise prevent this.
We believe that this type of policy can be extremely beneficial to those undertaking loan sales, refinancing, or syndications, in allowing purchasers to be comfortable with security, without having to refresh full due diligence. This enables deals to complete quickly and efficiently in a cost effective manner.