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J
EFFER
,
M
ANGELS
,
B
UTLER
&
M
ARMARO
LLP
1900 Avenue of the Stars, Los Angeles, California 90067
(310) 201-3526
Fax (310) 203-0567
jbutler@jmbm.comTwo Embarcadero Center, Fifth Floor, San Francisco, California 94104
(415) 398-8080
Fax (415) 398-5584
rkaplan@jmbm.com
JMBM's Global Hospitality Group®'sAlternate Strategies for Troubled Hotel Loans:
Lender and Borrower considerations for choosingWorkout, Receiver, Deed in Lieu, Foreclosure and Bankruptcy
S
TRATEGY
L
ENDER
C
ONSIDERATION
B
ORROWER
C
ONSIDERATION
Workout
Lender lacks the expertise,personnel and other resources tomanage the asset.Lender believes borrower has suchexpertise, personnel and otherresources.Lender has a philosophy favoringworkouts.Workout is not discouraged byapplicable regulatory considerationsor issues.Borrower has adequate integrity,financial resources, expertise whichwill enhance the value of the asset.Borrower’s track record issatisfactory (within the industry, inliving up to commitments, and inmeeting terms of any previousworkout).Value of the collateral is inadequatefor the credit but there may beadditional collateral or guarantiesthat can be obtained.Lender needs to perfect problemswith loan documentation or securityinstruments and arrangements.Lender wants to restructure theentire transaction to enhance itsposition in a possible subsequentbankruptcy.“Hope springs eternal in the debtor’sbreast . . .” (i.e., more capital,increased business, a marketturnaround, a better purchase price,or some other major improvement is just moments away if only the lenderwill defer action now.)Forbearance and time to find newmoney, buyers, better markets,partners, etc.Extension of maturity.Reduction of interest rate.Reduction of principal.Advance of new money.Subordination to new money.Deferred fees.Borrower believes it can realizegreatest value by a voluntary sale of the asset as a going concern.Borrower does not wish to give upcontrol of the asset.Borrower believes that appointmentof a receiver will destroy borrower’sability to voluntarily sell the asset.Borrower is concerned that receiverwill discover the “skeletons in thecloset” that borrower hassuccessfully hidden from lender foryears.
-2-
J
EFFER
,
M
ANGELS
,
B
UTLER
&
M
ARMARO
LLP
1900 Avenue of the Stars, Los Angeles, California 90067
(310) 201-3526
Fax (310) 203-0567
jbutler@jmbm.comTwo Embarcadero Center, Fifth Floor, San Francisco, California 94104
(415) 398-8080
Fax (415) 398-5584
rkaplan@jmbm.com
JMBM's Global Hospitality Group®'sAlternate Strategies for Troubled Hotel Loans:
Lender and Borrower considerations for choosingWorkout, Receiver, Deed in Lieu, Foreclosure and Bankruptcy
S
TRATEGY
L
ENDER
C
ONSIDERATION
B
ORROWER
C
ONSIDERATION
Lender may obtain concessions fromthe hotel management company orwishes to keep a good manager inplace.Lender may obtain concessions fromhotel franchisor or wishes to keep agood franchise.Credit is in trouble because of aweak market (and not some fault of the borrower or the manager orothers). In other words, the lendercould not do any better with theasset under its control and theborrower and other parties arecooperating to do everything that thelender would like to see done.Lender wants to obtain a waiver of credible and sufficiently worrisomelender liability claims.Lender seeks to avoid liability forenvironmental hazard.Lender wants to avoid the delay,expense and risks of bankruptcyunder acceptable guidelines(conformance with a business plan,operating plan, plan of assetdisposition, etc.).Borrower hopes the lender’sappointment of a receiver willimprove relations with the lenderand potentially may lead to aconsensual resolution of its disputewith the lender.
-3-
J
EFFER
,
M
ANGELS
,
B
UTLER
&
M
ARMARO
LLP
1900 Avenue of the Stars, Los Angeles, California 90067
(310) 201-3526
Fax (310) 203-0567
jbutler@jmbm.comTwo Embarcadero Center, Fifth Floor, San Francisco, California 94104
(415) 398-8080
Fax (415) 398-5584
rkaplan@jmbm.com
JMBM's Global Hospitality Group®'sAlternate Strategies for Troubled Hotel Loans:
Lender and Borrower considerations for choosingWorkout, Receiver, Deed in Lieu, Foreclosure and Bankruptcy
S
TRATEGY
L
ENDER
C
ONSIDERATION
B
ORROWER
C
ONSIDERATION
Receiver
Lender lacks confidence in themanagement skills of the borrower.Lender does not have the expertiseto work with the borrower to try toturn around its operations.Lender believes the borrower hascommitted financial defalcationsand needs a thorough review of theborrower’s operations and financialrecord keeping.Receiver can maximize cashbecause not liable for pre-appointment obligations, and doesnot make regular mortgagepayments to lender.Receiver brings new “neutral”professionalism to often tensesituation.Government officials and othersmay be more amenable to receiver’srequests.Receiver awaits lender takingcontrol or possession with possibleattendant liability—particularlywhen issues of waste, deterioration,health and safety, andenvironmental.Receiver can provide accurateoperating financial and otherinformation.Will appointment of receiver breachexisting management or franchiseagreements?Receiver may be able to raise cashwith receiver’s certificates-superpriority lien against collateral.Lender is concerned about theexpenses of a receiver, his attorneyand the lender’s own attornes.Borrower is concerned thatappointment of a receiver willdestroy its relationship with itssuppliers and may adversely affectborrower’s other assets.Borrower may use its relationshipswith parties who hold contracts thatare critical to the operation of theasset to attempt to subvert thereceivers ability to operate.Receiver may harm image of theoperating business with the publicand business community.Borrower may file Chapter 11 toavoid a receivership.
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