Loan Restructuring

Special Asset Management

Loan Workouts can be generally compartmentalized
into three distinct categories.

  1. Work with the borrower
  2. Litigate and foreclose on the borrower for control and immediate disposition
  3. Long-term Hold. Assume control and maximize value on project completion, stabilization and/or renovation. (This is limited by rules of the REMIC structure in CMBS loans)

Working with Borrowers

Does borrower add value?  Is the borrower part of the problem or the solution?  Does working with borrower increase overall recovery?  If Lender believes that borrower can be part of a global solution, they will take the time to work through a Modification of current loan terms and the negotiation of current defaults along the following general lines;

Forbearance (very temporary solution allowing the borrower some flexibility in the event of a default that is by definition, temporary)

Extension and/or Modification of the loan:
Modifications can take many forms. There is no cookie-cutter solution. Loan documents are varied, each lender has different tolerances, property risks can also play a part on how a modification gets done.

Although you may have heard these terms used in the past they may not be appropriate for lenders at this stage. As always, workouts are case by case and highly dependent on how motivated both Borrowers and Lenders are.

  • Forbearance of time to cure defaults, or forbearance of payments/partial payments
  • Discounted Pay-off (DPO)
  • Paydown/Write-down
  • Partitioning/Splits

Discounted Pay-off (DPO).  In many cases, lender’s outcome may be better by accepting a DPO today and minimizing its future risk. The borrower may be motivated to pay more on a DPO than the net recovery available to the lender through a foreclosure, marketing and ultimate sale.  Lender may find that a DPO as part of the settlement of a guarantor pursuit motivates a borrower to exceed lender’s probable outcome through litigation.

Foreclosure and Sale

In instances where borrower and lender can’t come to terms, or where borrower is the problem, lender will work through litigation to quickly obtain clean title to the property.  Lender must use the time to ensure familiarity with the property, the market, and the strategies to quickly stabilize the property, if possible.

The foreclosure process in many states is long and can be commenced while negotiating with borrower on a loan workout.

Long Term Hold

Either after foreclosure of through a receiver

Complete renovation or project completion

Restructure current leases if needed and actively market and lease property.

Stabilize property and hold for future appreciation