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Whisky Asset Based Lending is all in Good Spirits yet is Crown Preference Proposals putting Floating Charge Lending at risk?

Marketing / 6 Jun, 19

In an ever-changing market; and as uncertain factors rest on the horizon, borrowers and lenders together face many challenges from stockpiling to the Crown preference queue jumping proposals, yet whisky asset based lending (ABL) is raising spirits in the sector.

Whisky has become a big growth area for ABL regardless of the sector understood to be ‘cash rich’. The increasing number of distilleries, small or large, looking for growth and/or investment have viewed ABL as a significant opportunity. With a business retaining assets of great value; lay in maturation warehouses for many years generating no cash, releasing funds on spirit and mature whisky as an appreciating asset has been an increasingly popular source of working capital for companies.

There are currently over 130 active distilleries producing Scotch Whisky with the sector vital to the Scottish and UK economies, adding £5 billion in value each year, supporting more than 40,000 jobs and exporting £4 billion of Scotch annually to almost 200 markets.

The USA remains the number one market by value, growing 14% to reach £865m. Consumers are seeking out premium products and Single Malts benefited from such trends with value up 22% to £267m last year. There was increased demand from a number of larger European markets, including Spain, the fourth biggest market, up almost 10% to £167m; Germany, the number five market, up 13% to £164m and Poland, up 19% to £63m. This reflects some improved economic performance and continued growing popularity of Scotch across parts of Europe. India is becoming increasingly significant with value of exports up almost 14% to £97m to make it the ninth biggest market for Scotch yet its full potential will not be realised until its 150% import tariff is reduced.

Scotch is realistically the biggest net contributor to the UK’s balance of trade in goods. Without the impact of Scotch Whisky, the UK trade in goods deficit would have been 2.8% larger at almost £139bn with Scotch Whisky accounting for over a fifth of the UK’s total food and drink exports.

Volume is now up almost 5% to more than 1.2 billion bottles; almost 39 bottles exported every second. Single Malt Scotch exports are worth more than £1bn for the first time; up almost 12% to £1.02bn, an equivalent of 113m bottles shipped overseas.

Whisky is well positioned to take advantage of ABL. Whilst there could be good lending potential associated to a distilleries debtors and fixed assets, the nature of maturing spirit and whisky is more attractive that in most sectors with its value appreciating over time. A growing number of distilleries have successfully raised funds against maturing casked spirit and whisky stocks to support investment and growth. Sanderson Weatherall is respected, trusted and renowned advisors in the sector.

Risks loom with UK ABL under threat from the 2020 Crown Preference proposals in respect of floating charge lending. The Crown is once more considered to be ‘jumping the queue’. Lenders secured on an inventory floating charge may well be exposed and under collateralised in an insolvency. Crown liabilities need to be up to date to mitigate exposure and risk. Should proposals be approved; and there continues to be a great deal of opposition, floating charge lending could be as risky as unsecured lending.

The UK needs reliable access to ABL funds to operate; and putting floating charges at risk may restrict access to flexible funding in the future, which will only be detrimental to HMRC in the long term. We recommend that asset based lenders engage Sanderson Weatherall to assess and review current floating charge exposure whether proposals are approved or otherwise to assess collateral security on the existing portfolio and revolving floating charge facilities. There are options to circumnavigate; and options are available particularly with the whisky sector although not limited or isolated to this sector or inventory class.

Sanderson Weatherall are perfectly positioned to support lenders and SMEs through the challenges and risks ahead offering advice and due diligence to assess the exposure and options to mitigate the risk in all cases. We provide independent and specialist all asset class valuations and sector guidance relating to all sectors utilising inventory floating charge and receivable fixed charge facilities, along with plant and machinery and property term loans.

We are forward thinking specialist advisors to the ABL sector, with offices nationwide, providing professional advice and support throughout the UK and Ireland supporting both domestic UK and cross border European transactions. Our advice extends to Corporate Finance Advisors, Private Equity Investors, Restructuring Specialists, Accountants and businesses direct delivering flexible, efficient and detailed advice.

Topics: Blog

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