Hollybourne Hotels was a well-established hotel chain. The business was owned by a group of investors, each of whom had put many millions of their own money into the business.
When the business looked at refinancing in 2007 to buy-out its principal share-holder, they looked to Lloyds for this finance. As part of the lending conditions the business was required to enter into a hedging arrangement.
Lloyds sold the business a structured collar. The structured collar effectively ended the business because of the severe restrictions it placed upon the cash flow of the business.
Following the recession the hotel group’s income was reduced, in line with the hotel industry world-wide. The properties were eventually re-valued at the request of Lloyds, and this showed a significant deterioration in the value, which breached the LTV covenants. Whilst the directors thought the valuation was low, they agreed that the value of the property assets was below the £18 million loan. There is debate regarding how far below the £18 million mark the assets would have been had they been valued by a firm not instructed by Lloyds.
Hollybourne’s directors started negotiating with Lloyds following the valuation. Lloyds caused significant health difficulties for the directors because their demands were excessive thereby causing extreme stress. The directors believed that there were several ways in which the business could continue, including looking at alternative lending. They instructed Berg.
Without warning, in December 2013 Lloyds served a notice and related documents on Hollybourne’s directors to inform them that the £18 million loan and the £2 million overdraft had been sold to a debt purchaser. The purchaser was Promontoria Holdings 87 BV, which is incorporated in the Netherlands. It is a subsidiary of Cerberus Capital Management, a US based debt purchaser.
Lloyds refused to divulge how much the debt was assigned for. Lloyds had refused an offer from Hollybourne’s directors of £12 million.
Research on-line shows that Hollybourne’s loans were assigned for a 38.7% discount on the loan value as part of Lloyds’ Project East sale. A view of Cerberus’ news page shows that they have been purchasing loan portfolios from Lloyds for some time. It also appears that all sold loans are being sold by Lloyds predominantly to Cerberus and Deutsche Bank.
Based upon Cerberus’ press release, it would appear that Lloyds sold the loan to Cerberus’ subsidiary for £11.034 million, far below that offered to Lloyds by the directors of Hollybourne.
Cerberus shortly made contact with the directors of Hollybourne. They served a notice on the directors demanding immediate repayment of the whole outstanding loan and overdraft. Shortly thereafter Hollybourne was put into administration by Promontoria Holdings 87 BV.
Hollybourne’s directors attempted to purchase the debt from Promontoria Holdings 87 BV, but this request was denied. They then requested that the administrator assign the right of action against Lloyds in respect of the sale of the structured collar to the directors. The administrator agreed but imposed conditions so onerous that they prevented compliance by the Directors thus stifling any assignment of the claim.
The right of action against Lloyds became time barred because the administrators would not agree to the claim against Lloyds being assigned. As a result the directors were not able to seek redress in respect of this matter. The manner in which this was done appears to have shown the administrators looking after the best interests of Lloyds to the detriment of the company and the company’s directors, who were seeking the assignment of that right of action.
The manner in which the debt was sold was questionable to say the least and entirely lacking in any sensible commercial rationale. The directors made offers to Lloyds to buy-out the debt from Lloyds has eventually been shown to be greater than the amount paid by Promontoria Holdings 87 BV.