“We’ve all got a responsibility to take a little bit of the pain”: Q&A with Deepesh Thakrar, senior director of debt finance at OakNorth Bank

BHN spoke to Deepesh Thakrar, senior director of debt finance at OakNorth Bank, about the firm’s lending activities over the last few months and the future prospects of the sector.

• What has been the uptake of schemes through OakNorth Bank?

“It’s been incredibly well received. We’ve had about £150 million of approved deals a month so far since the start of lockdown, and about a third of this is CBILS (Coronavirus Business Interruption Loan Scheme) or CLBILS (Coronavirus Large Business Interruption Loan Scheme) related. From the very start we were initially focused on supporting our existing clients, however once we worked out what needed to happen, we very quickly opened it up to the wider marker and we received an influx of business.

“We talk about working from home versus working from the office, and to us working from home has just been incredibly busy – probably a lot busier than working in London by virtue of being remote based and not having any issues. As a result, we’ve completed £230 million CBILS and CLBILS loans and have just secured a further additional CBILS allocation from the British Business Bank after approving over £600 million in new loans since March. The uptake has been astounding and for us, it means we’re well placed to support those businesses that are struggling through a difficult period.”

• What types of properties have you been lending to, and where have they been based?

“As a bank, we have a large exposure to the hospitality sector. We’ve done deals in all sorts of spaces – a lot of hotels in central London, greater London, north of England, Somerset, and Canterbury. Even restaurants and bars all around the UK. Those are the types of businesses where we’ve been deploying the majority of our capital, just because they appear to be the hardest hit.

“If we look at our hotel client portfolio, every single hotel has broadly had to shut down – whether it’s a budget end, small room hotel, or whether it’s a large boutique with big conferencing and leisure facilities. We’ve got the full spectrum, and they’ve all been impacted. Our largest client has had to close a lot of their hotels in central London but also Manchester, Liverpool, Glasgow, and Bath.”

• How have the grants supported businesses?

“Predominantly the main use of funds have been for working capital. These businesses have suddenly had all their revenue dry up overnight and they’ve got a fixed-cost base that they need to maintain. We’re fortunate in regards to what the government has done outside of the funding schemes to help with furlough. We’re also seeing landlords be considerate for what the circumstances are, so rents have been deferred where they need to be. We’ve tried to support those unable to deliver payments by covering rent on behalf of the client and allowing negations to take place. Fundamentally, we’ve all got a responsibility to take a little bit of the pain.

“From a funding perspective, we’ve helped businesses that have needed to upgrade their specific asset to ensure that they can attack the market once out of the pandemic. We’ve been very careful with the use of funds – they should be used to support those that have been impacted by what’s happened. But mainly these funds have been used towards helping a business to survive and come out the other side with hopefully not too much debt, but enough to support it moving forwards and seeing it thrive thereafter.”

• With some grant schemes coming to a close in the next few months, how else can the government support the industry?

“Rishi Sunak and the government have done an incredible job. There’s a clear desire to want to support the heart of the UK economy, which is SME businesses. I think everyone we talk to are quite astounded by what we’ve achieved as a country, and everything has been well received by the majority of businesses.

“It’s difficult to have a view on what’s going to happen in the future because there’s so many variables – we’re all praying that there’s not going to be a second wave. I think the government have proved to themselves that if things do start to get worse, you’d hope they have the ability to step in – they’ve done some amazing things with the initial deferral of VAT and then five per cent going forwards. 

“Staffing has also been a huge concern for many. If you can still afford to pay staff and maintain a business (which is what the furlough scheme is intended to do), then the government has covered the majority of what should enable a business to survive. All I’d say is hopefully we come out of this very soon.”

• What are your thoughts on the current state of the hotel sector and its future prospects? 

“There’s no doubt that the hotel sector within the wider economy is one of few that’s been hit the hardest. A key revenue line for hotels is having guests stay over, and when you’ve got people in lockdown and tourism halted it’s just not going to happen. To my mind, we focus heavily on management teams: how they’ve handled the last recession or other difficult periods. If you’re working with a good team and there’s a solid underlying business, you can see there’s sufficient capacity for the business to continue to grow.

“It’s going to be difficult for businesses that rely heavily on transient and conference business due to the very nature of what the revenue looks like. Where you’ve got budget end hotels in good quality locations, I could see them doing well and coming out strong and able to get back to normal levels within a relatively short period of time. 

“Fundamentally, my view is that the UK has always been one of the go-to places – both in terms of its economy and as a great tourist attraction. We’ve got some positive things here that work in our favour.”

• Do you think we’ll see a surge of buyers interested in distressed hotel assets?

“I’ve had a number of calls, opportunistically, asking whether there’s any hotels on our books that are worth buying. We’re seeing that a little bit already, and there’s bound to be opportunity. Unfortunately, there’s going to be some businesses that don’t make it out the other side, through no fault of their own. You’d hope that the underlying debt position that we’ve provided is sufficient to see a business out.

“At the same time, we’re seeing a lot of the big funds actively looking for distressed assets that they know have significant holding power, and who have the ability to sit for one, two, maybe three years and buy at a desirable level. Like the last recession, it represents opportunity. Hopefully we can work with those funds and businesses who can help finance some of these opportunities.”

In May, news editor Eloise Hanson spoke to Ben Barbanel, head of debt finance at OakNorth Bank, about the long-term financial support of banks to viable businesses. Listen to the podcast here

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