Are your trust borrowing decisions properly justified and evidenced?

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When investing funds offshore, due diligence and care around selecting an investment manager comes as standard for Trust professionals. Accountability for the choice of manager and the ongoing monitoring of their performance is something taken very seriously in the industry. Surely the same approach should be taken to debt?

Whilst the selection of a debt provider doesn’t yet have the same modulation, it is increasingly viewed as one and the same. Trust professionals are too accountable for their lending decisions (whether between trusts or with third party providers) and the subsequent financial impacts cannot be ignored. Whilst there is not the same volatility to monitor as with stock market returns, the impact of even 10bps difference in the cost of lending can hugely vary investor metrics such as the internal rate of return and cash-on-cash yield. With the many responsibilities a Trust Director needs to manage, how can you be expected to truly take the temperature of the current, fragmented debt market?

Recall the last borrowing decision you made on behalf of a trust. If scrutinised, how prepared would you feel:

  • Is there an audit trail that you are confident justifies your decision?
  • How ‘fully informed’ were you, did you have the facts to form a market view?
  • Was the lending provided by default or renewal with an existing lender?
  • What were your reference points to ensure it was a competitive option?
  • If it was lending between two client trusts, how did you price this and what evidence shows this was priced correctly?

Throughout 2018, the recommended practice around issues that can taint Trusts have also highlighted the importance of evidencing a market view when accepting a debt offer or pricing an inter-trust loan. With banks unable to share rate cards, a true market rate can be difficult for Trust professionals to obtain.

It is, however, very important to as a client is paying less than the current market rate will risk tainting the Trust. Conversely, paying above current market rate would risk unnecessarily diminishing yields. As experts in the debt market we know how often and sporadically the debt market moves. We understand how it may feel impossible to ascertain all of these facts when making a lending decision.

With this in mind we have launched our tailored debt benchmarking service. Whether enabling you to price an inter-trust loan or decide on a third party lender, we provide a transparent view of rates within the current market, based on the asset class, asset value and LTV specified.

Our debt benchmarking service provides a full snapshot of the market, now, documented and ready to add to your client file. Aside from pricing, our reports also disclose:

  • Maximum LTV
  • Optimal pricing point
  • Type of lending provider
  • Total fees (and a cost comparison between lender options)
  • And any other covenants you should be considering when deciding on debt.

Speak to Adrian Rowland | Director to request a debt benchmark report.

T: 01534 767700

E: adrian.rowland@colliers.com