If you have taken out a loan are you complying with the terms of your facility agreement and any related security or other finance documents?
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Without an income stream you might be struggling to make your loan payments.
We would suggest discussing this predicament with the lender. If you are repaying capital during the term of your loan, the lender may, for example, agree that you are only required to service the interest during this period. The lender may also consider rolling up the interest for a set period and this will be added to the principal debt.
It is also worth noting that, even if you happen to be able to make payments for the time being, you might already be in breach of your financial covenants and related reporting obligations (these covenants being the early warning system for the lender to the fact you may not be able to make your future loan payments). Again, it is worth working with the lender to find a solution. They will be alert to the issues facing the industry and are more likely to be understanding where a borrower has been proactive in discussing this with them. We know the hospitality sector is giving serious consideration to engaging in a collective 9 month ‘national time out’ (a chain of deferrals of rent / management contract fee / debt service payments due in the 9 month period to the end of 2020 with an additional 9 months added to the end of existing contractual terms) and we would anticipate lenders engaging constructively on that basis.
Borrowers should not shy away from discussing with lenders known or anticipated defaults. Though it would be normal for them to reserve their rights and potentially bring in insolvency practitioners to assist with greater oversight in some cases, lenders are highly unlikely to seize control. Lenders are not in the business of owning or operating hotels at the best of times. In times necessitating orderly restructuring and new sources of investment, lenders know it will be most productive for them to work together closely and collaboratively with incumbent owners and operators.
To read more tips for hotel owners and managers click here.
