Special Assets Lawyer Blog

Jeffer Mangels Butler & Marmaro LLP changes its name to Jeffer Mangels Butler & Mitchell LLP: Name partner Marc Marmaro appointed to Superior Court Judge and Tax Lawyer Burton Mitchell becomes name partner.

Wed, 04 Aug 2010 16:57:03 -0800

After 28 years of service to the Firm, founding partner Marc Marmaro will be sworn in as a Judge in Los Angeles County Superior Court on August 5, 2010. By law, Marc's name must be removed from the Firm's title, which will occur on the same day. Congratulations, Marc on an exceptional honor.

In recognition of tax attorney Burton Mitchell's commitment and contributions to the firm for almost 25 years, the JMBM partnership has elected him to name partner. On August 5, the Firm's name will read, "Jeffer Mangels Butler & Mitchell LLP." Congratulations are in order for both outstanding attorneys.

More details are provided in the news release below:

Workout Panel- "Tools of the Trade: Techniques for Handling Troubled Companies Outside of Bankruptcy"

Wed, 07 Jul 2010 11:02:41 -0800

21st century bankruptcy laws don't always fit the bill. Often, there are better, more efficient and less costly means of reorganizing operating companies and restructuring or enforcing debt obligations. On Thursday, August 12, I will be moderating an panel of experienced workout professionals in a program entitled, "Techniques for Handling Troubled Companies Outside of Bankruptcy." The panel will use a hypothetical business in distress to illustrate how bankruptcy alternatives such as workouts, distressed sales, receiverships, assignments for the benefit of creditors, foreclosures, and composition agreements can be used to address typical problems.

Hosted by the Turnaround Management Association of Northern California, the event will be held at the City Club in San Francisco at 155 Sansome Street, #150 from 7:30 AM to 9:30 AM. Register before the day of the event to save. To register and learn more, click here.

Proof of Claim 101 -- What Is a Proof of Claim? What Is a Bar Date? What Information is Required to File a Proof of Claim?

Tue, 15 Jun 2010 09:13:38 -0800

Creditors usually should file a proof of claim when the borrower files a bankruptcy case. In Chapter 7 cases where there are assets in the bankruptcy estate and in Chapter 11, 12 and 13 cases, the creditor should file a proof of claim. Here are some of the basics involved in preparing and filing proofs of claim.

Special Assets Workout: The Psychology of a Workout

Tue, 01 Jun 2010 09:44:05 -0800

There is so much more to a workout than just drafting legal documents. My partner, Barry Freeman, recently published an outstanding article about the psychology of a workout in the esteemed Daily Journal. He describes the importance of understanding a borrower's perspective, who is likely to be in denial and frustrated about the problems his business is experiencing and the difficulties he faces repaying his lender. Handling this sort of situation can be tricky, but Barry gives several good pointers about how to best play the workout "chess game". It is a must-read.

The Proposed Financial Reform Bill Contains Sweeping Changes That Could Have Significant, Long-Term Impact

Wed, 12 May 2010 07:37:41 -0800

The "Restoring American Financial Stability Act of 2010" could prove to have a long-term impact on the banking industry if it is passed. Three provisions in the Bill (S. 3217) of greatest interest would directly affect small investors, venture capitalists, and angel investors by:

• Increasing the financial thresholds for individuals qualifying as "accredited investors" (e.g., those investors whose investments are not subject to certain information requirements imposed by federal securities regulations);
• Granting the Securities and Exchange Commission ("SEC") the power to make certain financing transactions which are currently preempted from state regulation subject to such regulation; and

• Requiring that those offerings that remain preempted from state regulation nonetheless be subject to a 120 day review process with the SEC.

Bankers often field requests from their clients to put together deals that include a mix of debt and equity financing. From the bankers' point of view, equity contribution is a good thing. It lowers the leverage ratio and gives the fledgling venture a better chance to succeed. In recent years, waves of deregulation and changing practices resulted in less protection for investors and, coincidentally, greater risk for lenders. As often is the case, the pendulum is now swinging back and more regulations are on the horizon. It is a good thing for commercial bankers to have an awareness of these trends and to factor them in when considering loan applications from investor groups.

Two members of the JMBM Special Assets Team™, Robert Braun and Craig Levine, explore the meaning of these provisions in their article, "The Financial Banking Reform Bill: Turning Back the Clock Private Placement Exemptions," which I have republished below.

If you wish to discuss how this Bill might affect you, your deals or your clients' deals, don't hesitate to contact us. The JMBM Special Assets Team™ is adept at structuring commercial finance deals for lenders to middle market companies and emerging entrepreneurial businesses. We work with lenders and borrowers, issuers, underwriters, credit enhancers and servicers on complex, innovative transactions, as well as routine financings where controlling cost is essential.

Commercial Lending Lawyers Joel Berman and Barry Freeman to speak at the first annual Special Assets Management Association (SAMA) Conference

Mon, 03 May 2010 11:20:18 -0800

Joel Berman and Barry Freeman, two Special Assets Team™ partners with whom I work closely, are speaking at the Special Assets Management Association's (SAMA) first annual conference. In the current downturn it is best to have a game plan for how to tackle the flood of troubled loans that are now saturating the market. This conference will offer insight into the economy, regulatory perspectives, challenges of managing a tsunami of default loans, tricky asset valuations, creative workout and exit strategies, the navigation of the internal reporting process, and the hiring of the right professionals who service the industry. Both Joel and Barry are to speak on very timely issues aimed at these topics and you won't want to miss them.

Meet the Money® Premier Hotel Conference- hotel preferred conference room rate extended until April 30

Wed, 28 Apr 2010 10:00:06 -0800

Yesterday my partner, Jim Butler, sent out an update (republished below) about the Meet the Money® Conference. Meet the Money® is a conference for lenders to the hospitality industry. If you have not registered yet, do it soon! The Meet the Money® Conference is the place to learn, listen and exchange ideas with a sophisticated audience to determine whether it is time to consider making loans to great properties that have been re-priced at lower, realistic values. See my last post about Meet the Money® here.

Meet the Money® is next week, May 3-5, 2010 at the Sheraton Gateway LAX hotel. Although our room block has sold out completely, the hotel has graciously extended our preferred conference room rate until April 30. There is still time to register for this "can't miss" event. We have one of the best lineups of hospitality industry leaders ever, and everyone you want to meet with will be there.
The tide has changed, and the "Game Changers" will all be at Meet the Money® -- Register Now! www.MeetTheMoney.com

Best regards,

Jim

P.S. Dress is casual, casual, casual.

Take a look at my www.HotelLawBlog.com
________________________________________
Creating legal and business solutions
for hotel owners, developers and lenders
in more than $60 billion of hotel transactions
around the globe.™

Jim Butler
Chairman, Global Hospitality Group®
Jeffer, Mangels, Butler & Marmaro LLP
1900 Avenue of the Stars, 7th Floor
Los Angeles, CA 90067-4308
(310) 712-8526 fax
(310) 968-4000 cell

Guaranties 101: What is a Continuing Guaranty? What is the difference between a Guaranty of Payment and a Guaranty of Performance? Must a Guaranty have a Limit or Maximum Amount?

Mon, 26 Apr 2010 09:27:06 -0800

Payment of most commercial loans to small businesses is personally guarantied by the owners of the business. While there is no hard and fast rule as to when a commercial loan must be guarantied, most lenders ask for the owners to guaranty payment of credit extended to a corporate or limited liability company ("LLC") borrower. There are several good reasons for getting the guaranty.

Meet the Money®, the Premier Hotel Conference: May 3 to 5, 2010

Mon, 29 Mar 2010 09:15:24 -0800

For 20 years now, my partner Jim Butler of JMBM's Global Hospitality Group®, the premier hospitality practice in a full-service law firm, has been hosting the Meet the Money® Conference for hoteliers and lenders to the hospitality industry. This year's theme, "Unlocking the Game-changers for the Coming Recovery," focuses on the hotel industry's rebound and will feature more than 100 industry speakers and more than 25 sessions over a three-day period.

This is a critical time for institutional lenders, as opportunities (and disappointments) arise from on-going hotel workouts and foreclosures and from CMBS loans that are coming due. Client commitments preclude me from participating this year, but for those subscribers who hold outstanding loans secured by hotel properties or who are interested in hotel financing, this conference is a must. The conference will hold panels and discussions on CMBS loans as well as other timely topics such as receivership, financing and investment strategies, revenue management, repositioning, public-private partnerships, timeshare and asset management. For instance, there will be a panel discussion focused on hotel receiverships that will be quite enlightening and will bring attendees up to date on current developments.

"Illuminating the Dark Side of the Bank During Challenging Times" - What Workout Professionals Do When A Troubled Credit Is Transferred Into Special Assets

Fri, 26 Mar 2010 09:50:33 -0800

I'm writing this as I head home from this year's California Bankers Association Lenders Conference at Indian Wells. It was an interesting event, with sessions on topics as diverse as sales and marketing to an economic forecast to my program that covered the progression of a loan from default through workout, forbearance, foreclosure and bankruptcy. In the 90-minute timeframe that I was allotted, it was a challenge to cover even the highlights of the issues that might arise in a typical commercial working capital revolving line to a business with a real estate term loan. I decided to base the program on a hypothetical based on a true life troubled loan and to focus on issue-spotting and one of my favorite topics for workout professionals taking over a credit - fact gathering and keeping an open mind.

My program started by laying out the hypothetical situation of a business that has moved into its second generation and is now being led by the son of the founders who wants to expand and grow the business. It's a typical scenario that bankers often see, and many times, everything goes well. But in our scenario, the business expands too rapidly, sustains an unexpected problem that eats into cash flow, resulting in an event of default under the loan. We've posted the slide show that I used in the program, together with the hypothetical facts on which the program was based below.

Chief Credit Officers at CBA Lenders Conference See Continued Weakness Ahead

Tue, 23 Mar 2010 09:23:06 -0800

I am speaking at this year's California Bankers Association Lenders Conference in Indian Wells this week, highlighting many of the techniques that workout professionals use when facing a troubled credit. My topic is "Illuminating the Dark Side of the Bank in Challenging Times," and in the presentation, I follow a hypothetical situation through from the first signs of trouble through workout, forbearance, possible foreclosure and Chapter 11. Once the webmasters work their magic, we'll be posting the slide show on the SpecialAssetsLawyer blog.

It's a tough assignment to handle in 90 minutes, but I try to touch on some of the important points that come up in most troubled credits, many of which we have touched upon before in this space. I find that I keep coming back to Ten Points to Consider in Developing a Workout Strategy as a jumping off point where workout professionals can begin the process. The lesson to me is clear: know your deal. Know the borrowers and guarantors. Know the collateral. Do a liquidation analysis so you can evaluate opportunities to exit the credit.

California Receivers Forum Program Set for March 18 in San Francisco; Victor Shum Celebrates 10th Anniversary With JMBM

Fri, 12 Mar 2010 09:29:05 -0800

We sold out the room for Receivership 101 last month, which my friend, Bruce Cornelius and I, had the honor of presenting for the Bay Area Chapter of the California Receivers Forum. Bruce and I serve on the Board of Directors for the Chapter.

Receivership 101 is a one-hour (if we talk fast) program that covers the basics of receiverships. It is a survey of the subject and after being refined for many years, it has become a good resource to learn about the basics of receiverships. You can find a slightly condensed version of the program materials right here on SpecialAssetsLawyer.com by clicking on the Receiverships tab.

The Forum is continuing its educational programs this month with an exciting program called "Receivership 201 - Receivership Issues for 2010 and Beyond". This program, to be presented by my fellow board members, Susan Uecker and Dennis Miller, will cover a handful of topics that are currently hot in the world of receiverships, such as condo conversions, note sales, housing developments and the important question as to whether a lender can get a better recovery by having the receiver sell the asset than by foreclosing.

I've attached a copy of the flyer and I urge everyone to attend, even though I won't be able to make it myself. I'm already set to celebrate an achievement by my corporate partner, Victor Shum: his tenth anniversary with JMBM! Victor is a savvy mergers and acquisitions lawyer who has many terrific accomplishments to his credit. I often rely on Victor to guide us through the ever-thickening maze of business organizations. He has a knack for the kind of practical thinking that solves knotty problems. We here at JMBM make a point of celebrating the longevity of our lawyers and our staff, and I am looking forward to taking time to thank Victor for all he brings to our Firm.

Bank Loan Workouts: What to Send to Your Counsel

Tue, 09 Mar 2010 06:27:30 -0800

A new deal has come into Special Assets and has been assigned to you. The line officer tells you that the customer has been a good customer of the Bank for several years and that you can expect nothing but cooperation. Everything was fine until last year, when business slowed to a crawl and cash flow dried up. The loan matured and the financials simply did not support the automatic extension that both line officer and customer wanted.

Your initial analysis confirms that until recently, the loan performed as agreed. You are fairly certain that you are going to be dealing with a business that has fallen on hard times, but might be able to right itself. The business is hanging on to old inventory rather than liquidate it, but it has leased out part of its building to raise extra cash.

After meeting with the customer and again reviewing the financials, you conclude that the best way to manage this credit is to temporarily forbear from enforcing existing financial covenants and to change the payment schedule to better match the expected, albeit reduced, projected revenue stream for a short time to see if the customer can manage its way out of the problem. The end of the quarter is fast approaching, and you need this deal documented and signed within days.

You have loan services copy the loan documents and send them to the JMBM Special Assets Team™ (good choice!!) to document your deal and turn it around promptly. When the loan documents arrive, however, your lawyers find that they need more information. They can get started, but they can't finish without more.

Counsel tells you that they also need the current outstandings, the UCC-1 financing statements, amendments and continuation statements and a UCC search. The lawyers also ask for the most recent borrowing base certificate and if you have one, an appraisal of the equipment and inventory would shed some light on the deal. Counsel also asks to see the loan policy of title insurance, as well as the new lease and the most recent appraisal of the property. One of the business owners recently retired, so we also need to see the entity documents, such as the LLC operating agreement. And just to be sure we get it right, can you please send over the credit authorization?

You wonder, "Why do they need to see all of that just to document a forbearance? Are they going to read every word of that mass of documents and bill the Bank hours and hours for doing so? If they read it all, this deal will never get documented!!" Good question, but rest assured, there are excellent reasons why experienced bank counsel want to know what you know before diving in and starting to write loan documents.

How Commercial Real Estate Borrowers Should Approach Their Lender: What to Do Before Defaulting (Part 5)

Fri, 05 Mar 2010 07:04:25 -0800

Experienced workout professionals carefully think through the first meeting with a troubled borrower. It is critical that the borrower, often unaccustomed to failure, recognizes why its loan has been reassigned to the Special Assets Department and why its new banker is a workout professional. It is also critical that the borrower comes to understand that the lender is willing to explore various means of getting the loan repaid consensually as an alternative to filing a collection lawsuit or foreclosing.

Savvy workout professionals take time to let the borrower know exactly what is expected by the bank before the first meeting takes place and then reinforce that information at the meeting. A bewildered borrower is of little help in troubleshooting the problem and looking for solutions. A prepared and thoughtful borrower who is willing to engage the lender may find a way out that is palatable to the bank. The fifth and final post in our series taken from my Urban Land article, "What to Do Before Defaulting," lays out some basic steps for a commercial borrower to follow before meeting its workout team for the first time. Do not assume that your borrowers know these steps, even if they are otherwise sophisticated investors or business people. Tell them clearly and as simply and as soon as possible.

How Commercial Real Estate Borrowers Should Approach Their Lender: What to Do Before Defaulting (Part 4)

Tue, 02 Mar 2010 06:46:32 -0800

Many commercial borrowers have not faced problems as dire as the ones they face today. They do not realize that their lender often wants to avoid a meltdown as much or more than does the borrower. Nevertheless, there are cases where bankruptcy becomes inevitable. These should be loans where the borrower actually has equity (at today's values) to preserve. Filing bankruptcy for a commercial real estate venture that is seriously underwater is simply a waste of time because the borrower sooner or later should realize that there is nothing of value for him or her to preserve.

Bankruptcy is often a good option where there are numerous unsecured obligations or other complications, such as litigation, that are difficult or costly to resolve, both in time and money. If your commercial borrower appears to be at its wits end and is contemplating bankruptcy, it is usually worthwhile to see whether some pre-filing planning is possible. Where there is an operating business, the borrower will need your consent (or the Court's order) to use your cash collateral or to obtain "DIP (debtor-in-possession) financing" to keep the company afloat while it reorganizes. In those cases, if the borrower does not come to you, reach out to it before the bankruptcy petition is filed. The fourth installment of my Urban Land article, "What to Do Before Defaulting," outlines topics that could be fruitful for pre-petition discussions between borrower and lender.