Downing Crowd Lists Bond with Equity Kicker for Investors

Investment crowdfunding platform Downing Crowd has listed its first security that is debt with an equity kicker for investors. The bond includes a 7.5% annual coupon and a term of up to 5 years and 9 months.

According to Downing Crowd, the fixed return on the bond and the potential upside on the equity combined are estimated to generate an internal rate of return (IRR) of around 10%. This is not a guaranteed return and, of course, higher yielding instruments tend to be accompanied by higher risk.

The bond will provide capital to Artemis Venue Services Ltd for its acquisition, and refurbishment of, Grade II* listed Pelham House Hotel. The hotel is a 16th-century townhouse located in the town of Lewes in East Sussex. It has operated as a 36-bedroom hotel for over a decade now and has reception facilities for up to 180 guests.

If the issuers hit the £2 million target funding from Downing they will convert the hotel into an “exclusive-use wedding venue, providing catering, bar sales and bedrooms for wedding couples and their guests.” To date, the bond has raised just under £800,0000.

The bond has a higher estimated loan-to-value (LTV) of 91%. To date no Downing Crowd bond has exceeded 75%, according to the company. The LTV is estimated to fall to 49% based on management’s estimate of Pelham’s mature trade, around year five.

The Bond has a relatively high estimated loan-to-cost (LTC) ratio of 74%. Downing investors’ interest are expected to be rolled up for the first two years. Downing says this makes it aimed at more sophisticated investors.

To reward investors for taking on more risk, the bond will also give shares to investors in proportion to their debt investment. This equity entitles investors to a share in any potential upside over the term of the investment.

The bond will have first-charge security over the bricks and mortar of Pelham House, as well as the assets of the business.

The Artemis management team will have skin in the game and have committed to investing £1.55 million of cash that will rank behind Downing investors’ debt.

Julia Groves, Partner and Head of Crowdfunding, said the offer is more complex than their standard bonds, therefore it’s likely to be better suited to more experienced and confident investors.  She said that both the quality of Pelham House as a venue and the strength of the new management give them confidence that this bond can provide generous rewards for investors who are able to take on the additional risk.

“Enabling the potential for investors to benefit from the growth of a business as well as earning a fixed return is an exciting new direction for Downing. But, at the same time, this move continues to be backed by the same thorough due diligence and our 30 years of experience in seeking out high-quality UK businesses, with over £150 million of our £1 billion assets under management held in assets in the leisure sector.”


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