Descripton

Offering Description

Loan Overview

The borrower is LT Education Abroad Limited (www.elischools.com) which is engaged in teaching foreign language in Ireland.  The company’s management team have over 37 years’ experience in managing some of the largest language training organisations in Ireland.

The purpose of the loan is to part-finance the acquisition of the Property which is owned and operated as an English school. The borrower LT Education Abroad Limited entered a purchase agreement to buy the building in 2019 for €900,000. The company has so far paid down €550,000 and has requested a bridging facility of €350,000 to complete the outstanding balance on the purchase agreement.

The purpose of the loan is to part-finance the acquisition of the property as the company is operating at max capacity of students it may enroll and thus seeks to expand its operation.

Risk Warning

Property Bridges has compiled this report on behalf of our lenders and have taken reasonable care to ensure the information provided is authentic and accurate. Please be aware that returns are not guaranteed, and your capital is at risk. Please also note that the term is not certain and may be extended under certain circumstances. Investors should seek their own advice before investing. 

The Borrower

The company’s founding team have over 37 years’ experience in managing some of the largest language training organisations in Ireland. The company has offices in Thomas Charles Wright Centre, 9 Merchant’s Quay East Drogheda and 7 Herbert Place, Grand Canal Dock, Dublin 2. Alex Mucciacito is the company’s owner and the managing director has been operating in the foreign language service industry in Ireland for over 15 years.

The company operates from 2 buildings at Grand Canal Dock, Dublin 2 and Drogheda, county Louth. The Drogheda building is 11,235 square feet in area and is being acquired by the business and is offered as security for this loan facility.

Eli Language schools are professionally managed and highly experienced.  They have taken the necessary steps to come through the Covid-19 crisis and have a full order book for Q3 / Q4 2020 and right through 2021.  In fact, they have so much business that some of it cannot be fulfilled with their current level of facilities and they have shared this business with other language school on a commission basis.  It is expected that they will seek to acquire a property in Dublin in 2021 to accommodate demand.

Trading and Financial Position

The borrower is trading well currently and has increased activity year on year.  The Coronavirus crisis may slow foreign language services temporarily, but the company is well placed to weather the crisis and the directors believe that the impact will be low for the following reasons.

As a highly innovative company and one with deep reach into their key markets, the business operated on-line language training during the lockdown period.  This had two benefits-it was an income earner in itself but also of the 1,200 students that took part, they have acquired 250 bookings to come to Ireland next year.

As the company will be at full capacity for student spaces from September 2020 (hence the need to expand), the company has had to place approximately 700 surplus students at rival language schools but earned a substantial commission in doing this.

The company has a balance sheet as at the end of 2019 showing a net asset position of over €600,000.

Trading Results

The business has traded very well over the past year.  The directors expect the strong growth in turnover and profitability of 2019 to be consolidated in 2020 and for substantial growth to resume in 2021 notwithstanding Covid-19. 

Turnover

Turnover in December 2019 was approximately €3,500,000 and in December 2018, it was approximately €1,300,000.  

At present, the directors project that while the turnover in 2020 and 2021 will not be maintained to the turnover earned in 2019 due to COVID-19, it will nonetheless perform relatively strongly as the turnover is underpinned by;

• operating under its maximum capacity with a full pipeline of students enrolled from September 2020 until 2021 upon the school commencing again in September 2020;

• the strong cash flow generated during the lockdown phase from operating the webinars; and

• the commission earned from placing the surplus student enrolled at rival schools.

EBITDA

A business such as this services debt through its earnings before interest, tax and depreciation (EBITDA).  This figure in December 2019 was in excess of €375,000.  This level of cash earnings would service total loan interest (interest for this proposed loan) over 11 times.

For 2020 the initial 3 months have been strong and are on a par with 2019 however there is expected to be an impact from the Covid-19 crisis.  However the directors believe that the impact will be low - the company continues to generate cash through webinars to approximately 1,200 students of which they expect 250 students to enroll in September once the Covid-19 restrictions are lifted in addition to the commission earned through placing surplus students at rival schools.

While 2020 may see some sales leak into 2021 we are confident that the company will generate sufficient EBITDA during the lifetime of the loan (24 months) to provide comfortable interest cover.

Financial Position

The balance sheet of the company as at the end of 2019 shows a net asset position of well in excess of €600,000.

Aside from the proposed loan, there is no other long-term debt to pay down.

Security

We will take a charge over the Property at Drogheda totalling c. 11,235 square feet. 

We have commissioned and received a Red Book valuation report from a leading national estate agency with experienced valuers with specific experience in the commercial property market. This report determines a current open market valuation of the Property at €700,000. The valuation uses recent selling and letting comparisons of similar properties in similar locations to determine the value of the unit. 

We will also take a charge over the shares in the company which will allow the lenders to take control and sell the properties in the event of default.

At a €700,000 valuation, our security cover is 2 times equating to a 50% Loan to Value.

Property Details

The building is one commercial unit of a traditional stone type construction being a terraced former grain store stretching three stories over ground floor level measuring a total of 11,235 square feet. It is currently operating as a language school. This impressive building is constructed of stone walls, concrete floors and a slated roof.

Planning

The Property has the necessary planning permission for the use it is put to. Full planning checks are part of the Property Bridges’ legal and due diligence process.  

Term

It is proposed to have a term of 24 months on this facility.

The borrower will refinance the facility once this period expires or place the Property on an open market sale.  At an LTV level of 50%, we expect the borrower to be in a position to refinance the facility. 

Conclusion

Eli Language School is a company that is trading strongly and has a healthy pupil book operating at maximum capacity.  The company’s managing director is highly experienced in his industry and has built up a substantial business over the past few years. The company supplies into the foreign language services and this market is projected to stay strong over the next couple of years driven primarily by immigration.  Recent trading at the company has been very strong and sees interest payments covered 1.1 times.  Even if there were some fall off in business in 2020 due to the Coronavirus issue, we still expect the company to earn EBITDA that covers interest comfortably. 

In terms of scenario planning - if for some reason existing relationships and agreements were to fail and the company found itself with reduced turnover and profits, the loan could be repaid twice over from the sale of the buildings at Merchants Quay, Drogheda, Co. Louth.

Our view is that the return offered is strong given the level of risk.

• The investment is for 24 months but has a minimum term of 12 months guaranteeing a minimum return of 9%.

• The property is in a prime location in Drogheda town that is in demand from locals and also has great connectivity and is close to both the M1 Motorway to Dublin. 

• The Borrower has well in excess of €600,000 capital on account as of December 2019 which is nearly twice in excess of the €350,000 loan amount sought.

• The company is operating at maximum capacity of students until 2021.

• The company’s management team have over 37 years’ experience in managing some of the largest language training organisations in Ireland.

• Our loan-to-value (LTV) rate of only 50% provides significant comfort even in the event the Property did not achieve its full asking price of €700,000 if there is a need to sell the Property to repay the loan.

• Should there be a second wave of the Covid-19 resulting in another lockdown period, the company can reduce its overheads quickly and significantly. For example, it only pays staff for services they provide and hence staff is not a fixed cost. In addition, the likelihood of a further period of lockdown due to a second wave appears to be receding according to the latest media reporting.