Loan Doc develops an individualized ‘health plan’ for lending insitutions that are ailing because of poor lending practices. By following a simple process of examining, diagnosing, prescribing and ultimately finding a cure, we offer the loan workout guidance a lender needs to be healthy.
We begin with a thorough examination of a financial institution suffering from non-accruals, substandard loans or T.D.R.'s (Troubled Debt Restructure). We look at the asset evaluation of the original loan, the active collection position, the liquidity of the real estate, environmental issues, the overall net operating income and the historical performance. It is essential to do a global cash flow analysis as well as a collateral review. It is also important to examine the lender itself to consider whether the underwriting standards, assumptions and approaches in the evaluation process and workout strategies are sound and legal. We then organize this information and put it in the context of current and forecasted financial and market conditions and their influence on the value of the credit. We always look for the hidden agendas – there is more to be known than the borrower is willing to reveal.
The next move is from the 'examination room' to the 'diagnostic center'. It is here that a realistic assessment of the asset condition is provided - it's “As Is” value. We focus on the collateral value and its financial performance while doing a risk rating evaluation of the loan and a property tax search.
We establish the credit worthiness of the borrower. Federal (OCC) and state regulatory areas will most likely not subject the borrower who is worthy to adverse classifications. A more aggressive approach such as a sheriff sale needs to be facilitated for a borrower who is not determined to be worthy. Along with this, we determine debt service coverage to ascertain the guarantor’s likelihood of repayment. We also diagnose weakness in the borrower’s credit, the loan’s cash flow, the willingness of the borrower to work with the lending institution and the bank’s own experience of negotiating and defending sub-standard loans. The bottom line is a” forensic” evaluation of the workout infrastructure. This makes us ready for the next phase.
We consider every possible approach in formulating a prescription. We look at prudent workout actions and strategies, proper lien positions and workout plans with consideration to loan covenants. The right “medicine” comes in different doses. It all depends on the ailment. Any of the following might be prescribed: adjustment in debt service coverage, concession of interest rate, interest modification, principal forgiveness, renewal or extension of the loan – or any combination thereof. The case might also call for internal controls, regulatory reporting and accounting reserve requirements, strong workout policies, risk management, frequent evaluation of loan collateral (site inspections) and debt service coverage.
Consideration of A and B notes, reworking marketing plans and maintaining “Loan to Value” consistent with market and bank policy might also be needed.
Finally, there’s the cure. There are two courses that are possible at this stage. One would be a performing loan with accrual achieved through repayment, renewal or restructuring the loan. This would always involve a six month test for a satisfactory payment schedule until the loan gets re-classified. The other course of action could be more radical and involve litigation against guarantors, charging off the loan principal, commencing foreclosure. Along with this course, we always consult local regulatory commissions for policies and procedures that are safe and sound. In the event that the borrower files for bankruptcy the bank would need to “lift the stay” and proceed with legal remedies.