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A quick guide to loan note security

Farrbury Capital | June 17, 2019

Many professional investors are considering loan notes as a means of growing their wealth. Loan notes provide investors with the opportunity to invest in the property market without being tied down by the legalities of being a landlord.

However, they also mean that the investor doesn’t actually own the bricks and mortar, as they would with a traditional property investment. As such, we’ve taken a look at what security is in place instead of the physical asset.

“With loan notes, the investment is in the property company itself, rather than an individual property. This means that the investor is able to benefit from the property market in a different way and potentially to benefit far more financially than is usually possible through a traditional property investment such as buy to let. As loan notes are a different type of investment, they require a different type of security. This takes the form of a security trustee.”

James Hayward, Investment Director, Farrbury Capital Partners

A security trustee is a company that is appointed to oversee the security of investors’ funds, should anything happen to the loan note issuer. The arrangement ensures that there is a major security in place, with the security trustee working for the benefit of the investors (also known as ‘noteholders’). A debenture ensures that the security favours the lender and attaches to all current and future assets that the company may hold.

In the event of something happening to the loan note issuer, the security trustee has the authority to seize all current and future assets, whether properties, land or any other assets. The trustee can ultimately liquidate these in order to distribute the resulting funds to noteholders.

“The role of the security trustee is to provide investors with peace of mind. It is a company with no links to the loan note issuer (other than the security trustee arrangement), which is there to support the investors should something happen to the issuer. It is a major security that serves to reassure investors that their capital is in safe hands.”

James Hayward, Investment Director, Farrbury Capital Partners

Please contact Farrbury Capital Partners by emailing info@farrburycapital.com or calling 0203 973 1510 for further details.