Special Assets Lawyer Blog

For 20 years now, my partner Jim Butler of JMBM's Global Hospitality Group®, the premier hospitality practice in a full-service law firm, has been hosting the Meet the Money® Conference for hoteliers and lenders to the hospitality industry. This year's theme, "Unlocking the Game-changers for the Coming Recovery," focuses on the hotel industry's rebound and will feature more than 100 industry speakers and more than 25 sessions over a three-day period.

This is a critical time for institutional lenders, as opportunities (and disappointments) arise from on-going hotel workouts and foreclosures and from CMBS loans that are coming due. Client commitments preclude me from participating this year, but for those subscribers who hold outstanding loans secured by hotel properties or who are interested in hotel financing, this conference is a must. The conference will hold panels and discussions on CMBS loans as well as other timely topics such as receivership, financing and investment strategies, revenue management, repositioning, public-private partnerships, timeshare and asset management. For instance, there will be a panel discussion focused on hotel receiverships that will be quite enlightening and will bring attendees up to date on current developments.

Continue reading "Meet the Money®, the Premier Hotel Conference: May 3 to 5, 2010" »

I'm writing this as I head home from this year's California Bankers Association Lenders Conference at Indian Wells. It was an interesting event, with sessions on topics as diverse as sales and marketing to an economic forecast to my program that covered the progression of a loan from default through workout, forbearance, foreclosure and bankruptcy. In the 90-minute timeframe that I was allotted, it was a challenge to cover even the highlights of the issues that might arise in a typical commercial working capital revolving line to a business with a real estate term loan. I decided to base the program on a hypothetical based on a true life troubled loan and to focus on issue-spotting and one of my favorite topics for workout professionals taking over a credit - fact gathering and keeping an open mind.

My program started by laying out the hypothetical situation of a business that has moved into its second generation and is now being led by the son of the founders who wants to expand and grow the business. It's a typical scenario that bankers often see, and many times, everything goes well. But in our scenario, the business expands too rapidly, sustains an unexpected problem that eats into cash flow, resulting in an event of default under the loan. We've posted the slide show that I used in the program, together with the hypothetical facts on which the program was based below.

Continue reading ""Illuminating the Dark Side of the Bank During Challenging Times" - What Workout Professionals Do When A Troubled Credit Is Transferred Into Special Assets" »

I am speaking at this year's California Bankers Association Lenders Conference in Indian Wells this week, highlighting many of the techniques that workout professionals use when facing a troubled credit. My topic is "Illuminating the Dark Side of the Bank in Challenging Times," and in the presentation, I follow a hypothetical situation through from the first signs of trouble through workout, forbearance, possible foreclosure and Chapter 11. Once the webmasters work their magic, we'll be posting the slide show on the SpecialAssetsLawyer blog.

It's a tough assignment to handle in 90 minutes, but I try to touch on some of the important points that come up in most troubled credits, many of which we have touched upon before in this space. I find that I keep coming back to Ten Points to Consider in Developing a Workout Strategy as a jumping off point where workout professionals can begin the process. The lesson to me is clear: know your deal. Know the borrowers and guarantors. Know the collateral. Do a liquidation analysis so you can evaluate opportunities to exit the credit.

Continue reading "Chief Credit Officers at CBA Lenders Conference See Continued Weakness Ahead" »

We sold out the room for Receivership 101 last month, which my friend, Bruce Cornelius and I, had the honor of presenting for the Bay Area Chapter of the California Receivers Forum. Bruce and I serve on the Board of Directors for the Chapter.

Receivership 101 is a one-hour (if we talk fast) program that covers the basics of receiverships. It is a survey of the subject and after being refined for many years, it has become a good resource to learn about the basics of receiverships. You can find a slightly condensed version of the program materials right here on SpecialAssetsLawyer.com by clicking on the Receiverships tab.

The Forum is continuing its educational programs this month with an exciting program called "Receivership 201 - Receivership Issues for 2010 and Beyond". This program, to be presented by my fellow board members, Susan Uecker and Dennis Miller, will cover a handful of topics that are currently hot in the world of receiverships, such as condo conversions, note sales, housing developments and the important question as to whether a lender can get a better recovery by having the receiver sell the asset than by foreclosing.

I've attached a copy of the flyer and I urge everyone to attend, even though I won't be able to make it myself. I'm already set to celebrate an achievement by my corporate partner, Victor Shum: his tenth anniversary with JMBM! Victor is a savvy mergers and acquisitions lawyer who has many terrific accomplishments to his credit. I often rely on Victor to guide us through the ever-thickening maze of business organizations. He has a knack for the kind of practical thinking that solves knotty problems. We here at JMBM make a point of celebrating the longevity of our lawyers and our staff, and I am looking forward to taking time to thank Victor for all he brings to our Firm.

Continue reading "California Receivers Forum Program Set for March 18 in San Francisco; Victor Shum Celebrates 10th Anniversary With JMBM" »

A new deal has come into Special Assets and has been assigned to you. The line officer tells you that the customer has been a good customer of the Bank for several years and that you can expect nothing but cooperation. Everything was fine until last year, when business slowed to a crawl and cash flow dried up. The loan matured and the financials simply did not support the automatic extension that both line officer and customer wanted.

Your initial analysis confirms that until recently, the loan performed as agreed. You are fairly certain that you are going to be dealing with a business that has fallen on hard times, but might be able to right itself. The business is hanging on to old inventory rather than liquidate it, but it has leased out part of its building to raise extra cash.

After meeting with the customer and again reviewing the financials, you conclude that the best way to manage this credit is to temporarily forbear from enforcing existing financial covenants and to change the payment schedule to better match the expected, albeit reduced, projected revenue stream for a short time to see if the customer can manage its way out of the problem. The end of the quarter is fast approaching, and you need this deal documented and signed within days.

You have loan services copy the loan documents and send them to the JMBM Special Assets Team™ (good choice!!) to document your deal and turn it around promptly. When the loan documents arrive, however, your lawyers find that they need more information. They can get started, but they can't finish without more.

Counsel tells you that they also need the current outstandings, the UCC-1 financing statements, amendments and continuation statements and a UCC search. The lawyers also ask for the most recent borrowing base certificate and if you have one, an appraisal of the equipment and inventory would shed some light on the deal. Counsel also asks to see the loan policy of title insurance, as well as the new lease and the most recent appraisal of the property. One of the business owners recently retired, so we also need to see the entity documents, such as the LLC operating agreement. And just to be sure we get it right, can you please send over the credit authorization?

You wonder, "Why do they need to see all of that just to document a forbearance? Are they going to read every word of that mass of documents and bill the Bank hours and hours for doing so? If they read it all, this deal will never get documented!!" Good question, but rest assured, there are excellent reasons why experienced bank counsel want to know what you know before diving in and starting to write loan documents.

Continue reading "Bank Loan Workouts: What to Send to Your Counsel" »

Experienced workout professionals carefully think through the first meeting with a troubled borrower. It is critical that the borrower, often unaccustomed to failure, recognizes why its loan has been reassigned to the Special Assets Department and why its new banker is a workout professional. It is also critical that the borrower comes to understand that the lender is willing to explore various means of getting the loan repaid consensually as an alternative to filing a collection lawsuit or foreclosing.

Savvy workout professionals take time to let the borrower know exactly what is expected by the bank before the first meeting takes place and then reinforce that information at the meeting. A bewildered borrower is of little help in troubleshooting the problem and looking for solutions. A prepared and thoughtful borrower who is willing to engage the lender may find a way out that is palatable to the bank. The fifth and final post in our series taken from my Urban Land article, "What to Do Before Defaulting," lays out some basic steps for a commercial borrower to follow before meeting its workout team for the first time. Do not assume that your borrowers know these steps, even if they are otherwise sophisticated investors or business people. Tell them clearly and as simply and as soon as possible.

Continue reading "How Commercial Real Estate Borrowers Should Approach Their Lender: What to Do Before Defaulting (Part 5)" »

Many commercial borrowers have not faced problems as dire as the ones they face today. They do not realize that their lender often wants to avoid a meltdown as much or more than does the borrower. Nevertheless, there are cases where bankruptcy becomes inevitable. These should be loans where the borrower actually has equity (at today's values) to preserve. Filing bankruptcy for a commercial real estate venture that is seriously underwater is simply a waste of time because the borrower sooner or later should realize that there is nothing of value for him or her to preserve.

Bankruptcy is often a good option where there are numerous unsecured obligations or other complications, such as litigation, that are difficult or costly to resolve, both in time and money. If your commercial borrower appears to be at its wits end and is contemplating bankruptcy, it is usually worthwhile to see whether some pre-filing planning is possible. Where there is an operating business, the borrower will need your consent (or the Court's order) to use your cash collateral or to obtain "DIP (debtor-in-possession) financing" to keep the company afloat while it reorganizes. In those cases, if the borrower does not come to you, reach out to it before the bankruptcy petition is filed. The fourth installment of my Urban Land article, "What to Do Before Defaulting," outlines topics that could be fruitful for pre-petition discussions between borrower and lender.

Continue reading "How Commercial Real Estate Borrowers Should Approach Their Lender: What to Do Before Defaulting (Part 4)" »

It comes as a surprise to many commercial borrowers and lenders that they can be one another's best allies in a successful workout. Where the commercial borrower has an investment of both hard work and money to preserve, the banker has a loan to collect. Working together, borrower and lender can often find common ground that results in a successful turnaround for both. The third installment of my Urban Land Institute article, "What to Do Before Defaulting," discusses ways that a commercial borrower can work with its lender to avoid losing the property to foreclosure. Workout professionals often use these tried and true techniques to make sure that their troubled borrowers know what the bank needs to forbear rather than to foreclose.

Continue reading "How Commercial Real Estate Borrowers Should Approach Their Lender: What to Do Before Defaulting (Part 3)" »