Supporting entrepreneurial and resilient businesses: Q&A with Deepesh Thakrar, OakNorth Bank

BHN speaks to Deepesh Thakrar, senior director of debt finance at OakNorth Bank, about the current lending market and post-lockdown recovery.

What’s been the take up so far of the RLS (Recovery Loan Scheme), and how does it differ from CBILS (Coronavirus Business Interruption Loan Scheme)?

“As we’ve only recently joined the scheme, it’s still a bit too soon for us to be able to evaluate take up. However, given the vaccination rollout is progressing well across the UK and restrictions continue to ease, we don’t expect this scheme to have as much take-up as CBILS which was introduced at the start of the pandemic.

“The other point to note is that with CBILS, the government covered the first 12 months of interest and any upfront arrangement fees on the borrower’s behalf. This is a big difference with the RLS and is another reason why we don’t expect take up to be as much. The only other main differences between RLS and CBILS is the loan sizes (£50,001-£5m for CBILS vs £25,001-£10m for RLS), and the amount of turnover businesses applying need to be making (over £200,000 for CBILS vs no minimum for RLS).

A survey from UKHospitality revealed that total rent debt sits around £2.5 billon for the hospitality industry. What advice would you give to a hotelier who’s looking for financing options?

“At OakNorth Bank, we lend to profitable, high-growth businesses with experienced management teams. When it comes to hospitality businesses, we specifically look at factors such as: whether the business has strong sponsorship, a strong brand, a good location, good reviews, the percentage of tourism guests vs corporate guests, the percentage of food and beverage vs rooms, whether there are any conference or wedding facilities, whether it has other amenities such as a spa or restaurant which will help give it trading throughout the year with locals as well as tourists, what the average room rate (AVR) is, what the revenue per available room (RevPAR) is, what the average occupancy rate is, etc.

“Now that we’re in pandemic times, we might also look at what creative steps the hotel has taken to stay open / keep making some revenue, such as:

• Dark kitchens or offering delivery of meals to people’s homes.

• Participating in the hotel quarantine schemes like Arora Group is doing with its airport hotels as well as it’s “Test and Rest” package.

• Offering heavily discounted rooms to key workers and those who needed to quarantine from family homes or socially distance, like HY Hotels did.

• Additionally, some hotel airports have isolation contracts in place for key workers.

“All of these factors will help us determine how resilient the business could be if the UK was to go into another lockdown, if tourism didn’t resume to pre-pandemic levels for years, etc.

Are we likely to see significant numbers of foreclosures later this year and do you think this will result in sales of distressed assets?

“The hospitality sector has been incredibly hard hit by the pandemic. According to the latest Future Shock report from CGA and UKHospitality, the sector recorded a staggering £53.3bn year-on-year drop in sales between the start of April 2020 and the end of September 2020. We therefore do expect to see sales of distressed assets and have already begun to witness this with certain types of hotels in certain locations.

Which banks are still lending and how have their lending criteria changed?

“We’ve heard from many operators that traditional high-street lenders have at least temporarily, given up on lending to hotels, or are undertaking re-pricing strategies, so sourcing finance is proving problematic for many hoteliers, even for prime assets.

“One of the issues is that most banks tend to lump all businesses into one of a dozen or so categories — for example, all restaurants, bars and hotels are classified as “hospitality”. This disregards the fundamental differences in how these businesses operate and makes it harder for banks to design bespoke facilities for each business. The experience of an all-inclusive destination resort throughout this pandemic for example, is likely to have been starkly different to an airport hotel or a business conference hotel.

“We can’t speak for other lenders and how their specific lending criteria may have changed. However at OakNorth Bank, we’ve continued lending to hotels throughout the pandemic, including:

• A bespoke debt facility for the acquisition and redevelopment of the Grade II-listed Dumbleton Hall Hotel in the Cotswolds

• A £50m loan to the Arora Group giving them the financial firepower to take advantage of opportunities arising from the COVID-19 pandemic

• A loan to The Jade Hotel, a family-run hotel in South Kensington, to fund its expansion and renovations

• A £30M loan to Staycity Group, Europe’s leading aparthotel operator to support the group’s expansion plans

• A £3.7M loan to the Signet Hotel Group for the refurbishment of Grade II-listed, Mitre Hotel at Hampton Court

Which kind of hospitality businesses do you think are best positioned to recover strongly from the pandemic?

“As mentioned earlier, with ongoing travel restrictions in place and risks of quarantining, there is pent up demand in the UK for staycations, so we expect many hotels to benefit from this.

“A recent example of us supporting a hotel which is set to recover strongly post pandemic is our £1.7M loan to HY Hotel, a five-star aparthotel in Lancashire that’s been providing accommodation to NHS and key workers throughout the pandemic. During the summer months last year when the UK came out of lockdown and the hotel was able to re-open to the general public, it experienced 100 per cent occupancy, benefitting from Brits opting for staycations rather than travelling abroad. It is entrepreneurial and resilient businesses like HY Hotel that will play a vital role in the post-pandemic economic recovery, so it’s essential that they get the funding they need.”

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