illuminating the dark side of the bank

8/9/2019 Illuminating the Dark Side of the Bank

1/44

1

Richard A. Rogan

March 22-23, 2010

ILLUMINATING THEDARK SIDE OF THE BANK

2010 Jeffer Mangels Butler & Mitchell LLP. All rights reservedLOSANGELES SAN FRANCISCO ORANGE COUNTY


2/44

2

The information in this presentation has been prepared by Jeffer, Mangels, Butler & Mitchell LLP (JMBM) forgeneral informational purposes only and should not be construed as legal advice on any subject matter, or to answerspecific legal problems you may have.

While we try to ensure the accuracy of the information, we cannot guarantee that all of the information is accurate. Youshould be aware that the law is constantly changing and varies by circumstance. Therefore, information on a given lawor legal issue may not be current or apply to your particular situation. You should not act or refrain from acting uponthis information without seeking the advice of professional counsel in your jurisdiction. Viewing and use of any of theinformation on this site does not create an attorney-client relationship between you and JMBM.

Do not send us confidential information related to you or your company until you speak with one of our attorneys andget authorization to send that information to us. Any information you do send to us through Internet email through thissite is not secure and is done so on a non-confidential basis and does not constitute or create an attorney-clientrelationship. We accept clients only after a conflicts resolution process has been cleared, and a written agreement onrepresentation has been agreed to by the prospective client and JMBM.

Unless otherwise noted, JMBM attorneys are admitted to practice only in California. This presentation addresses onlythe law of California and may not be applicable in other jurisdictions.

All content included in this presentation, or incorporated by association, such as text, graphics, logos, button icons, andimages, are used with permission or are the property of JMBM, its strategic alliances, clients, or contributors. Noportion may be reproduced in whole or in part without express permission. Any other use, including the reproduction,modification, distribution, transmission, republication, display or performance, of the content on this site is strictlyprohibited.

Disclaimer


3/44

3


4/44

4

Illuminating the Dark Side

Workouts

Forbearance

Chapter 11

Bankruptcy

Foreclosure


5/44

5

The Sting of A Sweet Deal

Mary and Frank

HoneyBear

Corporation


6/44

6

Bank Loans for Expansion

Daisy

HoneyBear Plant

Sam


7/44

7

Bank Loans for Expansion

Daisy

ExpandedHoneyBear Plant

Sam


8/44

8

Business Setbacks


9/44

9

Loan Defaults

Borrowerpanics

Diverts cash Hides

problems Bank finds

out


10/44

10

Develop Workout Strategy

Gather facts

Use

"10 Points"

to develop

strategicapproach


11/44

11

Face to Face Meeting

Meet in person

Site visit

Inspect collateral

Does Borrower

understand themagnitude of the

problem?


12/44

12

Evaluate Borrower and Guarantors

Strengths

Weaknesses

Honesty Financial

acumen

Ability to thinkdynamically


13/44

13

Downside Risk and Collateral

Liquidation

analysis

Collateralvalue

Unencumbered

assets

Stabilize


14/44

14

Gain a Full Understanding of the Credit

Properly

underwritten?

Understand thebusiness

Revenue sources

Costs


15/44

15

Loan Documentation

Careful review

Amend to fix

errors

UCC search

Real estateliens


16/44

16

Action Plan

Business plan

Collateral

support Cash flow

Management

Sources ofrepayment


17/44

17

Forbearance

Written

agreement

Purpose: Waive

defaults

Modify

performance


18/44

18

Forbearance Terms

Payments

Collateral

Covenants

Reporting

Consultant?


19/44

19

Forbearance Costs and Expenses

Time =

Collateral + Money

Forbearance Fees

Attorneys' Fees

Third-Party AuditFees


20/44

20

Tools to Liquidate Collateral

Distress Sale Outside of

Bankruptcy

Foreclosure by Secured Creditor

Receivership

Assignment for Benefit of

Creditors ("ABC")

Bankruptcy


21/44

21

Negotiated Sale

Quick

Flexible

No Court approval

Junior liens

Unsecured creditors

Fiduciary duties

Form unofficial CreditorsCommittee

Composition agreement?


22/44

22

Foreclosure

Quick

Personal Property,10 days

IRS Notice,

25days

Real Property,

3 months + 20 days

Must pay off Secured Creditor

No Court approval

Not a fraudulent transfer


23/44

23

The Potential Buyers

Today's

potential

buyers want agreat deal!!

And if they do

not get it


24/44

24

The Potential Buyers

Today's

potential

buyers fade

away like

ghosts


25/44

25

Foreclosure Issues

Multiple securedcreditors, landlords,leases

Group sale? Priority of payment

Lien-free sale

Some assets mightnot be subject tobanks lien


26/44

26

Auction

Foreclosure

Consensual


27/44

27

Receiverships

Neutral party

Court Appointed

Sale requires

Court approval Liens must be paid

or negotiated

Receiver controlssellers position

Rents and profits

receivers Loan defaults

Equity receivers

Corporatedissolutions

Partnershipdissolutions


28/44

28

Receiverships

Does the

collateral

generateincome to pay

the costs of a

receivership?


29/44

29

Assignment for Benefit of Creditors

Neutral party

No Courtinvolvement

Creditorscommittee

Assignee controlssellers position

Liens must be paidor negotiated


30/44

30

Bankruptcy

Chapter 11

Chapter7

Involuntary

Prepackaged


31/44

31

Chapter7

Chapter7 Trusteeis appointed

Debtor's assets

are liquidated Trustee tries to

sell assets toraise cash

Paid to creditorsin order ofpriority


32/44

32

Chapter 11

Chapter 11Debtor inpossession

Trusteeappointed forcause

Liquidation orPlan ofReorganization?


33/44

33

Electronic Filing

A BankruptcyCase iscommenced

when a Petitionis filed by oragainst the

Debtor PACER is 24/7


34/44

34

Proof of Claim

Principal

Interest

Fees

As of date of

filing Exhibits


35/44

35

Use of Bank's Cash Collateral

Bank's Consent or

Court Order

Forbid use until terms acceptable toBank


36/44

36

Adequate Protection

Indubitable

equivalent

Typicallyperiodic

payments

Alternative to

stay relief


37/44

37

Relief from Automatic Stay

Cause

No Adequate

Protection Can't confirm Plan

No equity and not

needed for effective

reorganization


38/44

38

Potential Buyers

Seller

Creditors

Stalking Horse Bidder

Section 363 Sales: The Players


39/44

39

Strike deal

before

bankruptcy

Write restrictiveterms of sale

Seller files Chapter 11

Immediately moves

to confirm Plan or

approve sale

Must satisfy Court

and creditors

Fairness issues

Sale - Auction

Prepackaged


40/44

40

Section 363 Sales in Bankruptcy

Confirm negotiatedsale or

Auction property

Debtor orBankruptcy Trusteesells property "freeand clear" of liens

Sold out lienholdersget paid or consent

Good faith buyer


41/44

41

Chapter 11 Plan

Chapter 11 Plan ofReorganization

DisclosureStatement

Creditors vote

Confirmation

hearing

Post-confirmation


42/44

42

Cramdown

Not less than

Chapter7

"Fair andequitable"

At least one

unimpaired

class accepts"Squeezed!"


43/44

43

www.SpecialAssetsLawyer.com


44/44

44

Questions?

Richard A. RoganJeffer, Mangels, Butler &

Marmaro LLP

Two Embarcadero Center,

5th Floor

San Francisco, CA 94111

(415) 398-8080

[email protected]

LOSANGELES SAN FRANCISCO ORANGE COUNTY

illuminating the dark side of the bank

Documents