Overview

For clients experiencing difficult market conditions or problematic balance sheet or cash flow situations, we develop remedial plans. This includes debt restructurings, refinancings, raising of additional capital, and Chapter 11 or 7 filing, if necessary. Our comprehensive solutions cover the impacts of personal guarantees and the tax consequences of forgiveness of indebtedness income.

In addition, TFP has served in different roles such as Receiver, Trustee, Forensic Accountant, Expert Witness, etc. supporting civil and criminal cases brought by Enforcement Division of the SEC (Walter Wencke case - Interpol 10 Ten Most Wanted list for over a decade) as well as the FDIC and Department of Justice (collapse of US National Bank in San Diego.
 

Services

  • Assessment of Financial Condition and ability to meet obligations

  • Determination of Insolvency Condition

  • Review of Terms, Conditions and all major debt instruments

  • Assist with negotiating short term Tolling Agreements or Standstill letters.

  • Assume the role of intermediary isolating Borrower from direct contact with lender personal if requested

  • Develop Restructuring Plan or Plan of Reorganization, as appropriate

  • Negotiate the restructuring with lender personnel

  • Review restructuring Terms Sheet and Loan Modification Agreements

  • Implement any transactions which are conditions to the restructuring, i.e. asset sales and/or refinancings
     

Recent Market Conditions

The aftermath of the 2008/09 financial crisis found many firms, especially highly leveraged real estate investment and development firms, in extremely vulnerable positions. As the capital markets closed, businesses found themselves with loans coming due, by term or by covenant or monetary default. Replacement funding sources were themselves constrained by regulators and unable or unwilling to provide financing. Compounding scarce liquidity was the precipitous and resulting drop in asset values in the real estate sector. In some sectors which were not only capital constrained but highly sensitive to the busy cycles such as hospitality, experienced devastating declines of 40 to 50% or more.

Threatened with possible insolvency and deficits in operating cash flow at the business level, the prospects of lenders proceeding against principals’ personal assets on loan obligations created incredibly stressful situation. At the insistence of lenders or upon the suggestion of CPAs and attorneys, TFP was engaged in many of these situations as a Financial Advisor, Credit Committee Member, Loan Restructuring Agent.
 

Process

Once engaged as a Financial Advisor, TFP first reviews the client’s balance sheet, historical and projected cash flows as well as all major loan documents including notes, trust deeds, loan agreements, assignment agreements, guarantees, trust indentures, etc. While TFP can prepare complex and detailed operating cash flow projections, the fundamental business assumptions must be the work product of the client, not TFP. On complex financings of $100 million or more and involving CMBS offerings and/or multi lenders, this review will encompass many thousands of pages of documents.

Only after review of the client’s financials and debt instruments will TFP seek introductory meetings directly with senior management of the lenders which will often have traversed to ‘work-out’ professionals. TFP presents its credentials and experience to the lender representatives, encourages general discussion about the lender’s policies and position on restructurings but does not present a proposed solution at this early point in the process. The necessity for short term tolling or standstill letters will be discuss and normally lenders are amenable to this request especially if they see that the borrower has engaged qualified professionals who are aggressively engaged in developing a restructuring solution

It is very important to solicit information regarding the decision making authority of the loan officers involved, the lender’s internal approval policy including levels of committees, timeframes for processing, etc. TFP needs to be working with the lender’s representatives and understanding of their processes and the level of detail and exact materials required for committee approvals.

After considering the lender’s predispositions, TFP then develops several alternative restructuring scenarios ranging from raising additional capital to partial debt forgiveness and loan extension with new terms, to possible outcomes of protection under Chapter 11 or liquidation under Chapter 7. Any evaluation of bankruptcy will be done in consultation with special counsel. If the client has not already engaged  bankruptcy counsel, TFP will suggest several firms which the client may consider. Selection of debtor’s counsel needs to consider optimal possible venues for filing, experience with the federal judges presiding therein, cost and travel logistics.

A thorough presentation and review of the financial restructuring alternatives is then conducted with the client and will often include its legal counsel. These discussions will include the potential tax consequences of debt forgiveness, and asset sales as well as probability of lender action against guarantors and the implications thereof. It is normal for the client to request follow up discussions as inevitable questions arise.

Once the client, its legal counsel and TFP agree upon the optimal restructuring path, TFP further develops the plan for presentation to the lender(s), usually in reverse order of their lien priorities. Normally there will be ‘push back’ from the lender regarding some or many issues so TFP must be ready to defend its client’s position re asset valuations, cash flows projections, etc.

Once a final restructuring terms sheet is negotiated with the lender(s), TFP will request a commitment letter from the lender(s), It is advisable for the client’s counsel, TFP and lender’s counsel to then conduct a conference call to discuss/agree upon a list of documents required for the restructuring before the drafting process begins.

If the above process does not culminate in an agreed upon restructuring plan then a filing for federal protection under the bankruptcy code may be necessary. If at all possible, bankruptcy filings should be only a true last resort as they are expensive, outcomes are uncertain, reputations and relationships can be damaged and the process causes a significant distraction to management’s ability to operate its business
 

Representative Engagement

Independent Hotel Chain

2,100 rooms in 16 properties in 12 states. Engaged as Financial Advisor in 2010 for an extended stay hotel developer/operator whose debt obligations substantially exceeded the depressed market valuations of its properties.

Eight of the properties were financed by $100+ million CMBS including a first mortgage loan and a junior and a senior mezzanaine loan. TFP negotiated purchases of the two mezzanine loans at less than 35% of par. Through its investment banking relationships TFP was able to obtain JV funds from opportunity funds in NY to buy the mezz loans. The most prime hotels were then sold and the proceeds distributed to the investment funds and our client under a complex waterfall schedule which produced very positive returns for all parties.

Commercial Real Estate Portfolio

Served as Co Chairman of in a Chapter 11 case involving several hundred millions of commercial real estate assets in several markets throughout  the Midwest and western US.


For examples of TFP Distressed Services, view the projects page.