F*** on F**** bond Kincardine (PC)

Anyone on this forum invest in this issue?

i’d be Interested in there reasons

Very risky (IMHO).

The site has planning permission in principle (and it's in the local plan), but not detailed planning permission.

From what I can work out, their strategy is to buy up the big lot, break it up into smaller bits and sell those bits to various builders.  I can't quite work out whether their intention is to sell those smaller plots with or without detailed planning permission.

Either way, there is a significant issue: flooding.

SEPA have already objected on grounds of flooding risk, and have even gone as far as to say that the land is undevelopable (if that's a word) and asked for it to be removed from the local plan.

The developers have proposed a scheme of building up the height of the land to reduce the flooding risk.  Whether that will appease the planners is uncertain.  I am also not sure as to whether the work required to do this will be done before or after the land is sold to builders (i.e. whether each individual builder is required to do that work on their plot, or whether the job is done globally).

Bottom line: IMHO, there is significant risk that they will be unable to get planning permission on grounds of flooding risk.  If this happens, the c£200k/acre valuation goes out the window, taking these bonds' collateral with it.  There are two other securities - debenture over the SPV (which is worthless if the land becomes worthless as the SPV has no other assets that I can tell), plus personal guarantees from two directors, but those guarantees are limited to a certain amount, and that amount is redacted in the documentation.

www.gov.uk/guidance/permission-in-principle :

It's a sort of vague "are we allowed to build something here?" without having to be completely specific of the number of dwellings, exact layout, floorplans, materials, etc.  Since it's a greenfield site, it makes sense to get PIP first before spending lots of money on architects etc. to do drawings, all the various studies and other things that would be required to get full planning permission.  If they went straight to a full application, there's a chance that the LA would say "not a chance on that site, mate", in which case the money spent would be lost.

Extract from most recent update (July 2021):

"The second condition is the local authority forming the view that the lower site will need to be raised in order to eliminate a 1 in every 200 year flood risk, with the complication that raising this area of land would require a correspondingly large relief lake to be dug to compensate for the loss of floodplain area that would result. If the local authority maintains this position, then whilst what is proposed is possible from a civil engineering perspective, there will be added cost and complexity to be addressed.

The borrower team is engaged in ongoing discussions to try to find a workable solution, and Route Finance is in the process of appointing a Project Monitor to oversee the steps taken and the progress being made."

This will be costly if insisted upon by the local council, and will likely extend the already overstretched time frame. On the other hand it does appear that a worst-case scenario of denial of PP can be avoided, and once work on bringing the land up to scratch is completed, a revised valuation could be positive for the borrower? 

Final paragraphs of update posted on website last week:

"Furthermore, Route Finance is currently in advanced negotiations with another party that wishes to acquire the loan. Further details shall be provided once an agreement on terms has been reached.

The Estimated Remaining Term will remain at one month until the timings of a potential exit are more clear."

How big a haircut would you guys accept to get out? I'm thinking in the region of 20%

I hope you are right, but I would sell you my holding for 80% of face.