Lending in the Social Care Sector

Whether you are an established group or first-time buyer, you will no doubt be exploring different lending options and holding conversations with professionals to identify the best deal. Whether you are considering taking a new loan or re-financing your existing debt, having a specialist team on board from the outset will help ensure you can secure appropriate and sustainable financing to support your operational, development and growing needs.

• We may be able to save you time and money. We will keep the process as simple as possible, anticipating problems and advising you if the interest rate or fees are out of line from other lenders’ terms.
• We will advise you about the market – for example, if the interest rate or fees are unusually high for a transaction of this type.
• We will advise which clauses in a loan document need particular attention (and are normally negotiated) and which are completely standard. Some examples would include:

1. 1. Agreeing grace periods for Events of Default, being the time given by the lender to you to remedy or correct a breach of the loan agreement;
   2. Agreeing what is called “equity cure” provisions which allows you to invest into the borrowing entity if you were in breach of a financial covenant (being an undertaking relating to the financial condition of the company, such as an undertaking that the loan will be a certain percentage of the value of the property or that the earnings will cover the interest payment obligations by a certain percentage); and
   3. Ensuring that the event of default known such as the payment default clause is drafted with say, a 2 day grace period, so that it is not accidentally breached. Material Adverse Change is an example of an Event of Default.

• We have spent years acting for lenders, High Street lenders, alternative lenders and funds, so we can anticipate their arguments and stances. This saves time for you and keeps your expectations in terms of cost and how long the process will take, realistic.
• Financial covenants need special attention. We will advise what they mean, when they will be tested and how to build in appropriate grace or cure provisions. Financial covenants require special attention because they are highly technical – relating to the financial condition of the borrowing entity and involve accounting/financial terms such as EBITDA, Financial Indebtedness and Financial Charges. Typical grace periods include 2 business days if there is failure to pay and 10 business days for any other breach/default.
• We can assist you in providing the conditions precedent and progressing the transaction to completion. Conditions precedent are the lender’s requirements in terms of documents (being the signed loan and security documentation) and other matters, such as insurance being in place and a valuation of any property coming in as expected. We project manage (including working with our real estate, corporate and employment teams, where appropriate) and ensuring the ball is not in our court.
• LMA loan agreements can be daunting at over 100 pages but we can help you focus on the salient provisions such as interest rate and fees, the representations and warranties, the covenants, including the financial covenants and the events of default. LMA stands for the Loan Market Association which has produced a suite of standard loan agreements to be used in different situations by lenders. LMA loan agreements are generally used when the loan is £10 million or more but can be used for smaller loans. Many lenders have their own shortened version of the LMA loan agreement known as “LMA Lite”.

Our specialist Health and Social Care Team regularly advises providers on all aspects of banking and finance in the care sector. Please get in touch!