The owners of Ufford Park in Suffolk face working for the next three years for nothing to service an interest rate swap sold to them to protect the business.
Colin Aldous, who runs the 90-bedroom hotel, spa and golf course, said the £5m turnover business which supports 200 jobs, should be focused on celebrating 20 years of trading next month. Instead it is trapped by a product it did not request.
The business doubled in size in 2006 after securing a £5m loan but profits came in under a banking covenant in 2007 and the bank insisted that Mr Aldous buy an interest rate swap. "It's the worst business decision I have made in my life," he said. "I have just had to condition myself that the business should make a return of 8pc and we will not take anything out at all. We are just working to pay off the swap. But I am really aggrieved."
He added: "We are the genuine, long-term entrepreneurs. We have committed everything we have ever made to our business. We take our responsibilities seriously and have always paid our dues."
The bank, which Mr Aldous declined to name as he still relies on its goodwill, has said the swap will cost £450,000 to redeem early.
The product capped Ufford's interest rate at 7pc and ensured it paid the bank's standard variable rate between 4.36pc and the cap. However, since Bank base rates fell to 0.5pc, the business has paid the difference between base rates and the floor of the swap as well as its bank's profit margin.
"We are paying 8pc for a loan we would have expected to pay two to three per cent," said Mr Aldous. "Who could have foreseen that interest rates would have dropped to 0.5pc in 2007. Hindsight is a lovely thing. But I was adamantly against taking it in the first place. We were just given no choice."
A second golf course owner based in Wales – who asked to remain anonymous – faces a fee of £252,000 to exit its swap. "I phoned them on Monday and it had gone up another £2,000," he said.
Source: Golf club owners bemoan below par derivative swap performance - Telegraph
Those owners were of course forced to take this tulip as condition of their normal credit line. I saw it first hand - asked for overdraft for SKA Inc in 2009 just in case we have slow paying clients which could have resulted in cashflow, and instead of £10k overdraft bank offered £8k + £2k on credit card. Not tulipy swaps but you get the idea - if you don't take higher margin product for bank they would not offer normal loan/overdraft.
Colin Aldous, who runs the 90-bedroom hotel, spa and golf course, said the £5m turnover business which supports 200 jobs, should be focused on celebrating 20 years of trading next month. Instead it is trapped by a product it did not request.
The business doubled in size in 2006 after securing a £5m loan but profits came in under a banking covenant in 2007 and the bank insisted that Mr Aldous buy an interest rate swap. "It's the worst business decision I have made in my life," he said. "I have just had to condition myself that the business should make a return of 8pc and we will not take anything out at all. We are just working to pay off the swap. But I am really aggrieved."
He added: "We are the genuine, long-term entrepreneurs. We have committed everything we have ever made to our business. We take our responsibilities seriously and have always paid our dues."
The bank, which Mr Aldous declined to name as he still relies on its goodwill, has said the swap will cost £450,000 to redeem early.
The product capped Ufford's interest rate at 7pc and ensured it paid the bank's standard variable rate between 4.36pc and the cap. However, since Bank base rates fell to 0.5pc, the business has paid the difference between base rates and the floor of the swap as well as its bank's profit margin.
"We are paying 8pc for a loan we would have expected to pay two to three per cent," said Mr Aldous. "Who could have foreseen that interest rates would have dropped to 0.5pc in 2007. Hindsight is a lovely thing. But I was adamantly against taking it in the first place. We were just given no choice."
A second golf course owner based in Wales – who asked to remain anonymous – faces a fee of £252,000 to exit its swap. "I phoned them on Monday and it had gone up another £2,000," he said.
Source: Golf club owners bemoan below par derivative swap performance - Telegraph
Those owners were of course forced to take this tulip as condition of their normal credit line. I saw it first hand - asked for overdraft for SKA Inc in 2009 just in case we have slow paying clients which could have resulted in cashflow, and instead of £10k overdraft bank offered £8k + £2k on credit card. Not tulipy swaps but you get the idea - if you don't take higher margin product for bank they would not offer normal loan/overdraft.
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