You can bank on it

RBS invests millions in pubs. Mark Stretton talks to one of its main men.

Think of the least admired professions and after estate agents, lawyers and tax inspectors you'll probably get to bankers; those cold-blooded folk that force us to borrow too much money and then snatch it back like a playground bully taking our dinner money.

When Po Na Na went into administration last year the bank that pulled the plug was portrayed as the big bad wolf. It was Royal Bank of Scotland (RBS) and one of the main people responsible for the decision was Andy Turbutt.

Andy heads up the corporate banking leisure team for all of the Royal Bank's businesses within the M25. As well as pubs, bars and restaurants, the leisure team lends cash to businesses in hotels, gaming, health and fitness.

The head of RBS corporate leisure team can't talk about specific clients, past or present, because of confidentiality clauses but says banks get a bad rap. "Within any sector there are failures. That is a fact of life," he says. "It is tempting to blame banks.

"The high street has been a victim of its own success but I don't think there is as much doom and gloom as some people make out. If you look at the quality of the offering compared to five or six years ago, it is exceptional. People get a very good experience. The difficulty has been purely down to the supply of venues outstripping demand."

Nevertheless there has been much publicised pain. Companies like Brannigans, Balaclava, Front Room, Old Monk and Porter Black have joined Po Na Na in administration.

There is a perception that the banks are all too willing to fund rapid expansion in the good times but pull the plug when the help is needed most during bad times. "Any banker that is involved with a business that doesn't succeed is absolutely gutted," he says. "You don't go into a deal with any thoughts that might happen. But unfortunately it does happen - markets change, climates change. There isn't any banker in the market that hasn't experienced that.

"I have lost a tremendous amount of sleep over things that have not gone right. It's a painful thing. You have worked with these people, you have seen the business grow, so when it goes wrong it is a very personal, painful, emotional thing."

The banker says there has been a material change in the way banks assess potential corporate clients and a huge improvement in the level of due diligence since the recession of the early 1990s. "You have to put it into perspective and look at the amount of growth and success we have had," Andy says. "Against that is a failure rate of 0.5 per cent. That we have had so few failures shows that the way banks operate has improved since the last recession."

The RBS man says the banks are also now more flexible than they have ever been. "Whereas previously the banks would take action, they are now much more prepared to work with companies through the tough times."

While some companies have collapsed, another is teetering above the abyss. SFI Group, operator of Bar Med, Litten Tree and Slug & Lettuce over-expanded, breaking banking covenants and running up debts north of £155m.

Its consortium of banks, led by Barclays, has not yet pulled the rug from under SFI. One suspects this is because it would not recoup its money but Andy says it is a great example of banks making every effort to work through an almost impossible situation. "In the relationship, we agree with customers on the exact basis upon which we will work together," he says. "And if that doesn't work you have to make a decision. In every example of a problem, the banks have moved towards the issue but it's a question of how far you can move.

"We have strict insolvency laws - directors are not allowed to trade insolvent."

Andy says for every bad story there are many, many more good. One of the current trailblazers of the managed house sector, Barracuda, is a client. The process for borrowing money from the bank is anything but lightweight. "It depends on each situation," says Andy. "Sometimes the big deals get done quickly because there is more public information available.

"Generally the first thing is meeting the people because eyeballing someone is very important." Andy or his team will discuss operating plans with the potential client and the financial model will be analysed in-house by qualified accountants.

The leisure team assesses the non-financial aspects of the proposal such as the CVs of the management, the market, trying to understand niches, assessing appropriate parameters such as the ratio of loan to turnover or loan to ebitda (earnings before interest, tax, depreciation and amortisation).

"We establish what we can provide and draw up an indicative term sheet, which sets out the terms."

After that, Andy's team would make an application to a credit committee, which comprises three people from the executive board who peruse the proposal. "My team has to present to the credit committee face-to-face and a decision is made there and then." Andy says he or his team has probably put forward 150 proposals to a credit committee and only one project wasn't supported.

Andy's team is solely focused with the provision of long-term senior debt of between £10m and £500m but the RBS is heavily involved in the pub sector in all sorts of guises. It does not release figures but its exposure to the sector runs into billions. It owns the freeholds of Scottish & Newcastle Pub Enterprises, the 1,100-strong leased giant, it also has a big stake in Pyramid Pub Management, the tenanted group that runs 500 pubs, has smaller stakes in a further raft of managed operators and also provides bridging finance.

It clearly is a big pub fan.

"RBS has a very long history of investing in the pub sector because of the historic robustness of the business," Andy says. "It is a tried and tested sector. Obviously the fact that it is asset-backed makes it easier for banks to lend. That's why the securitisation market has worked so well."

Andy says he fell into banking after his A-Levels, thinking it would be good for his CV. His first job was printing chequebooks in a NatWest bank "managed by a man with a bowler hat".

Working at Cavendish Square, he did all the usual branch jobs before going to work at Oxford Circus Corporate Banking Group. "I have always enjoyed business," he says. "People setting up in business, progressing and achieving things - being part of that was a real fascination."

Andy worked at Oxford Circus for three years, working with lots of hotel clients before he went to work in the regional credit department at Mayfair. "This was the time of recession," he says. "I learnt a lot about the things that could go cause problems but also how to help the businesses that were in difficulty."

Andy then got involved in sector specialism, working with companies that were borrowing £10m and more.

He was finally "let loose on customers" with his first managerial post in Knightsbridge. He looked after 100 clients who had leisure and property businesses. "I don't know how I did it," he says. "These days our guys tend to look after 25 clients each."

He was promoted to run the unit's business development team four years ago, shortly before NatWest was taken over by the Royal Bank. It was then that he joined the specialist leisure team.

"I'm still very positive about the pub market," says Andy. "Community pubs are proving their robustness through a tough trading period. There are interesting things being done with gastropubs."

Food is a big opportunity, says Andy: "As the consumer trades up there is a huge opportunity for good value-for-money food."

He says he loves working with entrepreneurs. "I love watching people succeed in this business, I love seeing how they do it," he says. "I enjoy meeting people - there are some fantastic characters. My hours aren't great but theirs are bizarre; I