In the current economic climate, we will continue to see significant challenges in the Hotel and Accommodation sector. In addition to dealing with the practical issues around health, staffing and reduced occupancy, we thought it may be beneficial to provide suggestions on dealing with funders and banks through this period.
Often with the operational issues owners and operators are facing, it is easy to forget about the funders. Funders, like most of us, are still coming to grips with the changing market and what it will mean for their customers in both the short and long-term. Having open and early discussions with your funders will help them understand the issues you are facing and how they can assist.
Our suggestions include:
- Call them first – don’t wait for a funder to call you to discuss any issues, it is better that you make the call to them.
- Don’t wait until you have all the answers – Funders don’t expect you to fully understand what the effects will be or to have a plan fully developed. It is enough that you demonstrate you understand the issues and that you are developing a plan.
- Breach warning - If you are likely to breach your facility, it is best to give them plenty of advance warning. Breaches are easier to deal with ahead of time for several reasons. Firstly, it shows that you are proactive rather than reactive and that you are informed about the business. Also, at this time, funders’ resources are likely to be stretched. Advising early gives the bank more options to waive the breach rather than reporting the breach. This is important from both a resourcing point of view but also in terms of reporting to APRA.
- Review your facility – understand the covenants and do some stress testing around these. Consider the facility expiry date and consider whether it is better to extend it early. Understand the timing of valuations and whether it makes sense to request a reasonable delay. Consider whether the facility has the capacity (either existing or on restructure) for the funder to capitalise interest for a period of time.
- Keep communicating – keep the funder updated, both with good and challenging news, as required.
The CBRE Hotels and CBRE Debt and Structured Finance teams are more than happy to talk through any issues on a confidential basis. Collectively, we have considerable experience gathered over previous downturns and in working though funding restructures and refinances in challenging situations.