Diamonds are for… five years and very well secured 21/12/2016
Diamonds are a peer-to-peer lenders’ best friend, as Shirley Bassey sang. Or meant to, we’re sure. Cardiff’s finest export will doubtless have had many a diamond stocking filler at this time of year.
ThinCats has also had a thing or two to do with diamonds, with the platform’s recent exposure brought to a successful conclusion through a repayment of £3.9m by Diamond Manufacturers, which has been a borrower on the platform since 2013. However, this history helped the platform keep its exposure to the hardest substance known to man.
Henig Diamonds Parcel (HD) is a Hatton Garden-based diamond merchant, which has been trading for more than two decades.
Ivor Freedman, senior partner at sponsor for the deal, Freedman & Partners, said: “We knew the people at HD, and the fact that ThinCats had already leant to the diamond industry was a way of raising the prospect of doing business with them. Three months after we spoke, the firm contacted us about taking out a loan on the platform.”
HD is a profitable business with a turnover of £7.5m a year. “What’s clever about HD is its software interface, which allows the client to see exactly what they get,” added Freedman: “It is underpinned by a business model based on service. This is a great example of how ThinCats capital is helping to expand an already successful business.
HD raised £700,000 through ThinCats last month, repayable over five years at a rate of 9%. The loan was to buy diamonds for resale, with the 50% loan-to-value security being HD’s diamond stock.
“The loan is taking over from a facility from Barclays,” explained Freedman. “While the latter is cheaper, it’s over a shorter period – 170 days – and HD required a longer period to ensure they could sell the stock.”
The deal gives lenders a high level of transparency – and not just because of the clarity of the stones.
HD will ensure that it has at least double the value of the amount borrowed in the form of diamond stock, to be topped up at every month end. It will provide quarterly and annual accounts, and there is provision for ThinCats to carry out a stock audit by a third party upon request.
Underpinning the security in diamonds of £1.4m is its stock of about £4m, along with £5m of stones permanently on consignment from one of their suppliers. The three-star graded loan is underpinned by a four-padlock security grading.
ThinCats head of credit, Simon Brook, commented: “We were pleased that covenants give us considerable visibility over the security. The regular reporting and the bankable nature of the collateral gives us confidence.”