Part 3 Timeline: Approval, Documentation, and Closing

22nd October 2014 · Comments Off

The 3rd in a 3-part blog series, this wraps up an unusually in-depth analysis of a CMBS Workout timeline.

We kicked off our series in part 1 with a pre-default timeline for a property owner whose circumstances were quickly unraveling — tenant loss, cash flow issues, maturity with no take-out financing, etc. — with no time to linger. Our second post analyzed the timeline once the property owner is in full negotiation with the Servicer and a few of the difficult decisions the Owner must face. Now, what happens next? We’re about to tie it all up for you…

We last left off with the Servicer considering all facets of a proposed resolution…

Deal & Dialogue (involves roughly 30-60 days; varies depending on Servicer’s interest to negotiate and their caseload):

At this point, the Servicer lets us know that we’ve submitted a deal on behalf of the Borrower/Owner that warrants a dialogue. The Servicer will usually give us some indication of the proposal terms they are willing to discuss and those they will not consider.

Counter-Proposal and Continued Dialogue:

Depending on the Servicer’s response, THG works with the Borrower/Owner to massage a counter-proposal that flexes to the Servicer’s criteria while balancing the Borrower’s needs and respecting their limitations. During this time, it’s common to get a “Rejection Letter” from the Servicer rejecting our original resolution offer. In most cases, this move on the part of the Servicer is an indication—a signpost—to THG on how we might proceed. For example, we’ve had rejection letters often serve as a new jumping off point for a renewed dialogue. So while it is a clear dismissal of the current proposal, it’s an open door for a follow-up. If we feel the Servicer is sufficiently intrigued by our original offer, here is where we have an opportunity to re-tool the offer so it becomes more appealing to the Servicer.

Acceptable Offer (usually 60-90 days):

Once we’ve landed on an offer that’s acceptable, THG and the Servicer come to a verbal agreement on terms the Asset Manager is comfortable taking to their Loan Committee. (Leading up to this point, many Asset Managers have run the deal “up the flagpole” internally first before taking it to the Loan Committee. They may have early conversations with committee members, other asset managers, and in many cases junior certificate holders/controlling class members.)

Review and Confirmation of Terms (averages 60 days):

When the Servicer accepts the restructuring terms or discounted payoff amount and gets final approval from the Loan Committee, THG reviews and confirms the deal terms with the Borrower/Owner. Loan documentation begins. Once the Loan Committee confirms the deal, the following steps occur:

  • Servicer sends out an Approval Letter
  • Lender collects any “additional current information” required as part of Servicer’s fiduciary responsibility to the Trust
  • Document is negotiated between parties (Borrower should not expect to gain any additional benefit at this stage)
  • Documents (depending on deal) are sent to Borrower/Owner’s attorney

Conclusion-Loan Pay-off or Restructure:

The Servicer issues a Discounted Payoff or Loan Modification Agreement to all parties and the loan is either paid off or restructured. The Borrower/Owner may or may not stake claim to the reserve funds—depending on the settlement terms–and often pays a modification fee plus the Lender’s costs.

It can easily take 12 months to go from a pre-default situation through to final approval and close. Our clients run the gamut from very experienced to unsure of what steps to take next. Our specialty is engaging with the Servicer on your behalf, while you continue to run your business. Contact us for an advisory consultation.

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