APEX Hotels has raised £28 million from pensions funds to pay down its debt as it emerged that executive chairman Norman Springford plans to “step back” from the running of the family-owned business.
The company raised £18m from Standard Life on the rental on the group’s hotel near the Bank of England. The other £10m will be financed from the BBC pension fund on one of its hotels in Edinburgh’s Grassmarket.
Springford, who launched the eight-strong hotels group with the acquisition of a former Heriot-Watt University building in 1996, said the group had considered a range of alternative financing measures in an effort to diversify its £122m of senior debt with its sole lender, the Royal Bank of Scotland.
Its options included selling an equity stake, syndication and bonds. And while the pension fund-backed packages means the company remains profitable, these are set to have a “horrendous effect” on the balance sheet under revised accounting standards which has resulted in reducing the portfolio’s market value, he admitted.
“As an accountant I am almost embarrassed to say how on earth can this affect fair value?” he said.
Springford said that he has been banking with RBS for 35 years. “They have always stuck by me,” he said, but added that relationships with banks in general are “frustrating at present”.
“Probably one of the main problems with the banks is they will give you an umbrella when it is sunshine and take it back when it starts raining,” he observed. “There’s no point giving you money at the top of the cycle because it can only go one way. If you get some money at the bottom of the cycle you can do more with it.”
The company secured a £41.3m term loan in 2008 from RBS to develop its newest hotel, Temple Court in London, which opened in March last year. The company repays in rising quarterly payments – starting at £500,000 – with a final £10m “balloon” payable in 2014.
Springford considers this a fair deal. “They took a chance on us – they deserve some of the reward,” he said. “The cheapest form of finance for us is senior debt. There comes a point where you say the risks the banks were taking deserve more than just the usual debt margin – the margins have to go up.”
He admitted the company was “toiling” in Edinburgh as a result of competition at the inexpensive end of the market, as represented by newcomers such as Motel One.
He said the company would continue to develop its existing hotels but that questions on the future strategy of the business was “not for me to answer. It is a family decision. I am 68 now. Yes, I am stepping back. I never could manage a hotel in the first place,” he joked.
But he added that the lessons learned during the economic downturn meant that its style of management was now more risk-averse, in line with the poor outlook for economic growth.
He said: “We are not a family that spends – we don’t have boats or aeroplanes or fancy houses. We thought, why risk losing the pot? That was a concern in 2008. At that point we had four developments under construction. We could well have decided the risk was too high. All is well now, but we certainly wouldn’t want to have that risk again.”
Eddie Rintoul, managing director, RBS corporate & institutional banking in Scotland, said: “We are delighted to be the banking partner to one of Edinburgh’s most successful family businesses. The package we have provided to Norman and the team at Apex underlines our commitment to supporting highly respected businesses in their approach to expanding in to new locations and markets.”