STRUCTURED FINANCE ASSET

RESTRUCTURING AND DISPOSITION

Richard A. Rogan

©2010 Jeffer Mangels Butler & Mitchell LLP. All rights reserved
 The Players

Seller

Potential Buyers
Creditors

Stalking Horse Bidder

 The Mezzanine Lender

• Secured by
"equity
interest" in
OWNER of the
property
• NOT secured
directly by the
property
The Potential Buyers

• Objective: To arrange
the best possible terms
with the certainty of
closing.
• Fears: Seller will use
buyer’s effort to put the
property into play.
Someone else ends up
buying the property.
 The Potential Buyers

Today's
potential
buyers want a
great deal!!
And if they do
not get it……
 The Potential Buyer

Today's
potential
buyers fade
away like
ghosts……
 The Seller

• Objectives:
• To get a price high
enough to satisfy
fiduciary obligations to
creditors and investors.
• To avoid guarantor
liability.
• Fears: Getting squeezed
by the buyer and the
creditors.
The Secured Creditor

• Objectives:
• Minimize loss
• Avoid taking back
the property
• Fears:
• Discounted payoff
• Fees, costs and
expenses
• On-going expenses
 Secured Creditors-Consensual

• Lenders
• Leasing Companies
• Cash payoff at closing
• Negotiate
• Assumption and
assignment
How low
• Negotiate?
will they go?
• Cure payments?
The Mezzanine Lender

• Opportunity???
• Stay, pay and play…
to own or control the
property
• Or….
• Take the loss and run!
 Creditors Committee

• Unsecured
• Official v. Unofficial Will insist on
• Oversee Process
• Fairness
getting something.
• Get best price
• Get simplest terms
• Discount for cash?
• Assumed executory
contracts
• Cure payments
 Get the Facts

• How Will the

Secured Creditors
look at the deal?
• Value –
• Now
• In the near term
• Cash Flow
 Cash is King

• Secured
creditor's
concerns:
• Will the new loan
be repaid?
• DSCR
• LTV
Junior Lender becomes Owner

• Subject to senior
debt:
• Mezzanine lender
forecloses its
security interest in
property owner
• Junior lender
forecloses out
owner and
mezzanine lender
 The Framework

• Distress Sale Outside of Bankruptcy

• Receivership (sale by Receiver)
• Bankruptcy
• Chapter 11
• Chapter 7
• Involuntary
• Prepackaged
• Foreclosure by Secured Creditor
 Distress Sale Outside Bankruptcy

• PROS • CONS
• Flexible • Clear title?
• Quick • Liens?
• No Court approval • Usually requires
• Can be structured to cash infusion up
adapt to cash flow front
projections
 Sale by Receiver

• Court appoints
receiver during
foreclosure
• Neutral party
• Court confirmation
of sale required
• Terms negotiated
 Section 363 and Bankruptcy Sale

• Confirm negotiated
sale or…
• Auction property
• Debtor or Bankruptcy
Trustee sells property
"free and clear" of liens
• Sold out lienholders
get paid or consent
• Often prepackaged
• Good faith buyer
 Prepackaged Sale

• Strike deal before • Seller files

bankruptcy Chapter 11
• Write restrictive terms • Immediately moves to
of sale confirm sale
• Must satisfy Court and
creditors
• Fairness issues
• Sale - Auction
Stalking Horse Bidder
 Secured Creditor Foreclosure

• Lien-free to buyer
• Wipes out junior liens
• Wipes out equity
• Quick
• Personal Property,10
days
• IRS Notice, 25 days
• Real Property, 4 months
• Cannot prenegotiate bid
 Special Assets Lawyer Blog

• Visit the NEW Special Assets Lawyer Blog

• Deals with practical everyday situations faced by
lenders and workout professionals
• www.specialassetslawyerblog.com
 Questions

Richard A. Rogan
Jeffer, Mangels, Butler &
Marmaro LLP
Two Embarcadero Center,
5th Floor
San Francisco, CA 94111
(415) 398-8080
RRogan@JMBM.com