Former Manchester heavyweight bridging lender returns

Former Manchester heavyweight bridging lender returns

A lender which collapsed into administration is set to be resurrected after a new debt fund has backed a management buyout of its loan book from administrators.

A lender which collapsed into administration is set to be resurrected after a new debt fund has backed a management buyout of its loan book from administrators.

A fund led by Warrington corporate finance firm Dow Schofield Watts has backed a management buyout of Davenham Group’s loan book from administrators at Duff and Phelps.

Dow Schofield Watts raised £5 million in the PHD Equity Partners Debt SPV No 1 fund from a number of high net worth individuals and the firm’s own directors.

The proceeds have been used to back a buyout via a new company called Davenham Portfolio Management, which has acquired the residual loan book only.

The plan is to use it as the basis of this new lending business, Davenham Portfolio Management, targeting small and medium-sized firms, focusing on the North.

Davenham Group, based in Deansgate, Manchester, had a significant exposure to the property sector and got into trouble when values plummeted following the 2008 financial crisis.

Davenham Group was founded in 1991 as a privately-owned finance firm lending across three divisions: property, asset finance and trade finance sectors.

It had been through a number of buy-outs prior to its flotation on the stock market in 2005; the firm had initially grown by providing trade finance and asset-based lending to SMEs.

A move into providing bridging finance on property loans fuelled a period of rapid growth, assisted by a £300 million financing deal with RBS in 2006.

In the year to 30th June 2007, it had an asset base of over £277 million and over 160 staff.

However, as property valuations plummeted the firm was stuck with a portfolio of underperforming loans; it continued to struggle with debts despite agreeing a £215 million refinancing in 2009.

Its bleak prospects came to light when the specialist lender posted a pre-tax loss of £55.4 million for the year to 30th June 2009.

The jump in impairment charges - from £3.8 million in the previous year to £49.2 million - was blamed at the time on an “unprecedented” rise in bad property loans.

It announced in 2010 that it would cease new lending and would run off its book of property, asset-based and trade finance.

In February 2011, Davenham’s largest shareholder, Kingswood Property Finance, entered into exclusive talks with the Group’s banking syndicate - led by RBS - with a view to possibly reviving its loan book, but talks subsequently failed.

Davenham went into administration in October 2011 after its banking syndicate refused to renew its facility.

A report published by MCR in December 2011 showed that Davenham’s lenders were left out of pocket to the tune of £64.8 million.

Since 2011 a small team has been managing the loans, recouping payments for the firm’s creditors who have now agreed to sell the book for an undisclosed sum.

James Dow of Dow Schofield Watts, said: “Due to the current banking environment, the Davenham team were unable to secure the required debt facilities through traditional sources.

"We always recognise opportunity – this is a good management team, coupled with a cash generative, strong asset-backed business and we structured a high yielding debt instrument which allowed the management team to retain all the equity.”

Commenting on the news Steve Marsh, Managing Director at Goldentree FS and former MD of the Davenham Group, said: “I’m delighted to see that the Davenham name will live on and I wish Paul [Burke, current MD of Davenham] and the team every success in the future.”

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