loan modification, its owner could
include market information showing that the experts believe the
current downturn will pass in six
months to a year. If the lender allows certain modifications during
the recovery period — and the borrower takes cost-cutting measures
as shown in the revised budget —
then based on the hotel’s included
historical financial information, it
likely will survive and resume the
regular debt-service payments.
Market information, revised budgeting plans showing cost-cutting
measures, and current and historical financial information will help
the lender’s evaluation process.
Share the business plan for sur- 4.
viving the down cycle. Your clients
should treat their lender or servicer
as a business partner. Borrowers
should share how their business
model, asset structure and opera-
tions — including cost-cutting mea-
sures and revised budgets — have
been revised to help them survive
the temporary market conditions.
The business plan must demon-
strate how the requested loan ex-
tension or modification will help
them survive and succeed.
Prepare for a lender request for 5.
access to financial books and
records. The lender may request
that a consultant review the
borrower’s books and records.
12 Ways, continued from page 28
Allowing this access gives credibility to the borrower’s workout
proposal. Understanding the borrower’s business needs and requirements and the potential for
success of any proposed workout
plan will help the lender analyze
its remedial options and likely will
expedite the process.
Expect a prenegotiation letter 6.
from the lender or servicer prior to
any discussions. Often, tensions
run high, and lender-borrower
Note that these letters may include a borrower waiver of any
claims to date or a requirement
that the lender or servicer be reimbursed for any fees and expenses
incurred to date. Some view these
provisions as aggressive, they usually are negotiable.
Understand the lender’s potential 7.
actions and strategize accordingly.
Have an attorney review loan documents carefully to determine if the
financial distress of the borrowers
“Knowing who to call
from the start will save time and
minimize borrower frustration.”
communications may be stressed,
uncontrolled or inhibited. A prenegotiation letter can help relieve
tension and allow communications to occur without concern that
statements will be used in court.
This letter will also contain “
reservation of rights” language in favor
of both parties. This allows each
party to reserve and retain any
rights and remedies it may have
under the loan documents and
or their assets has triggered any
notice or disclosure requirements,
springing escrows or lockboxes
for property income, financial-cov-enant defaults, or recourse carve-outs. If a default has occurred,
the lender may have the right to
stop future advances, impose a
default interest rate or take enforcement actions. These actions
could include cutting off access to
bank accounts, exercising set-off
rights, accelerating loan maturity,
or proceeding to enforce liens and
security interests in collateral.
Request a temporary standstill 8.
or forbearance agreement. This
can allow the parties to focus on
evaluating the borrower’s and collateral’s condition and developing
a proposed workout strategy. Be
aware that some agreements may
propose that upon expiration of
the forbearance period, the lender
may pursue all remedies without
notice to or objection by the borrower. The lender should have the
right to pursue any right or remedy; borrowers should not agree in
advance to waive their rights with
respect to any action the lender
Evaluate the lender’s liens 9. and
collateral position. Understanding
the lender’s rights and what action
it likely will take can help negotiations. The borrowers’ attorney
can review the loan documents
and the lender’s security interests
in any collateral for flaws that may
encourage lender cooperation. If
the lender already has sent a notice of default, the attorney can
determine if the notice was provided properly.
If a notice of default contains
flaws such as incorrect contact parties, improper methods
of notice, failure to provide a
proper cure period or immediate
continued on page 36