DEUTSCHE Bank Sydney has refinanced a $90 million facility for LM Investment Management’s First Mortgage Income Fund owed to the Commonwealth Bank.
LM chief executive Peter Drake (pictured) says the new loan is for an initial two-year term with a one year option to further extend for three years in total.
Deutsche Bank has advanced LM $90 million on terms that the debt be reduced to $83M by December 31 2010, $72M by June 30 2011, $63M by December 31 2011, and if the one year option is exercised, $49.5M by June 30 2012.
“These repayment schedules are budgeted into the cash flows of the fund, taking into account the goals to increase investor returns and to operate a redemption programme”, says Drake.
“The repayment of the facility is ultimately linked to the orderly repayment of assets within the LM loan portfolio and enables the fund to be managed properly without the CBA pressure to realise assets regardless of the property market cycle and the credit markets.”
Drake voiced frustrations at the CBA, where an original $120 million facility had been set up, but is now focused on a strategic partnership moving forward.
“The Commonwealth Bank proved very difficult to work with,” says Drake.
“The CBA loan was not in default and was geared at less than 20 per cent, but the bank harassed us all the way to the line. Unfortunately the banks in Australia have a monopoly and are preferring to lend on the more profitable and less balance sheet intensive consumer residential loans and credit cards.”
He says the refinance speaks volumes for the quality of investment assets within LM’s flagship fund.
”Deutsche Bank is one of the top 10 largest banks in the world. It is a testament to the quality of investment assets in the LM First Mortgage Income Fund that in the midst of one of the most difficult financial periods in history this refinance was achieved.”
The transaction was a joint effort of Deutsche Bank branches in Sydney and Hong Kong.
“The amount of intensive due diligence completed by the Deutsche Bank analysts and their legal team was unsurpassed. A very high level of asset based due diligence was conducted from March to June this year,” says Drake.
LM will focus on the ‘catch up payments’ of outstanding investor distributions and will continue to make payments as free cashflow comes to hand.
“LM will continue to make regular payments to those investors with approved hardship requests up to the present internal cap of $20,000 per investor to ensure fairness to all,” says Drake.
“In addition, this refinancing of the CBA facility will enable the fund to once again undertake new lending opportunities along with the investment in existing assets which will in turn see the performance of the fund enhanced over time with the investment once again providing investors with the appropriate risk/return over cash.”
LM operates internationally from eight offices on the Gold Coast, in Sydney, Hong Kong, Auckland, London, Dubai, Tokyo and Johannesburg. It has around $760 million in funds under management.
The company now receives inflows from 49 countries - an increase of 10 this year.
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