Fears for Kilmartin as Lloyds cracks down on debt

By Ian Fraser

Published: The Sunday Times

Date: June 14th, 2009

Iain Wotherspoon; image courtesy of Bloc LtdLloyds Banking Group is seeking a radical restructuring of one of Scotland’s largest property developers, Kilmartin Holdings, amid fears that the group may go into administration.

Bank of Scotland has lent £250m to Edinburgh-based Kilmartin, founded by Iain Wotherspoon in 1996.

Results published on May 29 revealed that Kilmartin made a pre-tax loss of £46.7m in the year to April 30, 2008, had £288.7m of liabilities due to be paid off within one year and an overdraft that is up for renewal in mid-2009.

Since late 2008, Bank of Scotland Corporate and subsequently Lloyds have been in crisis talks with the developer, with a view to restructuring it and staving off its collapse.

With backing from 50%-owner Bank of Scotland Corporate, Kilmartin accelerated its £1.3 billion development programme in 2007 as other property developers started to rein in their plans.

The most likely option for Kilmartin, according to property sources, is that Lloyds will parachute in Kevin McCabe, founder of developer Scarborough, to take control of the group.

McCabe would be tasked with a “work out”, meaning he would be expected to salvage as much as possible from Kilmartin’s asset base.

Another option is that the bank will ask Wotherspoon to inject some of the properties he owns through his private vehicle Annfield into Kilmartin in return for continued support.

Other options are thought to include parking some or all of Kilmartin’s “toxic” loans with the government’s asset protection scheme. The final option is administration.

Wotherspoon would not comment on the most likely option. A Bank of Scotland Corporate spokesman also declined to comment.

The Bank of Scotland took a 50% stake in Kilmartin just as the UK’s property market was headed for meltdown in May 2007 and its integrated finance unit has two directors on the board.

Kilmartin had a net deficit of £16.4m at April 30, 2008, meaning it owed £16.4m more than it owned. In the 2008 annual results, auditor Chiene & Tait said it could not comment on whether Kilmartin could continue as a going concern.

Chiene & Tait said: “While the directors consider that bank facilities will be available and sufficient to enable the company to meet its obligations as they fall due for payment, the company has not yet agreed its funding facility with its bankers for a period of at least 12 months from the date of approval of these financial statements.”

Wotherspoon said: “We are still in negotiations with the bank.”

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