Tough Times for Lenders : Financial Services Lawyer & Attorney : Winstead Law Firm : Finance, Banking, Bankruptcy

On Tuesday, June 8, the Reznick Group hosted a seminar on "Workout Strategies and Options" at our offices in Dallas.  One of the panelist was a fellow shareholder, John Nolan.

The seminar attracted an interesting mix of lenders, borrowers, and investors.

True to the focus on the seminar, the speakers focused on this list below.

It is a good road map or template for any workout plan.  So, here it is for your use (no priority order):

• maturity date extension
• additional funding (bank & life company only)
• interest rate reduction and\or amortization relief
• principal balance reduction
• A\B note split
• relief from personal guaranty
• White Knight or rescue financing
• short sale
• deed in lieu of foreclosure
• foreclosure
• bankruptcy

Need information on any of these topics?  Use the "search" function on this blog, and pull up blog postings on the topic; or, explore the "topics" archive.

If you have anything to add to the list, please post your comment below.

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Periodically we host webinars on hot topics for distressed commercial real estate.  Obviously, with so many properties in default (or heading that way), understanding some of the legal remedies is at the top of everyone's list.

On Tuesday, April 27 from 12:00pm to 1:00pm (central time), John Kincade, Roland Love and Brian Morris will discuss topics such as:

• extraordinary judicial remedies in Texas, such as receivers and special injunctions
• the Texas foreclosure process and the unique aspects of Texas foreclosure laws
• collection strategies and options
• title problems and challenges
• other issues which should be considered and pitfalls to avoid

We know that this topic is "hot" - 50 people signed up for this webinar on the day that we sent out our e-mail announcement for the seminar.  (These are free.)

Even though this webinar will have a Texas focus or slant, many concepts are common or similar in other states.  So, the content should help you as you work with your lawyer in a state other than Texas.

For registration information, log-in instructions and joining our e-mail distribution list for future webinars, click here.  Also, here is a PDF describing the webinar (note: click here for registration instructions and information).

Reminder: if you missed a webinar in the past, it is never too late (in this digital world) to listen and learn.  Here is a link to one of our other webinars:

• investing in distressed assets

If you have a topic that you'd like us to cover in a future webinar, or as a blog, please leave a comment below.

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This last week was full of interesting information on distressed commercial real estate. Below is a short summary of what strikes me as the most interesting information released by these sources:

• PricewaterhouseCoopers’ Korpacz Real Estate Investor Survey
• Mortgage Bankers Association (MBA) 4th Quarter (2009) Report on commercial real estate (CRE) delinquencies
• Fitch Rating’s report on CMBS delinquencies (and special servicing)
• Fitch Rating’s report on CMBS hotel delinquencies (and special servicing)

Together, the reports indicate that the free-fall in CRE prices might be over; however, surely the growing delinquencies will throw some uncertainty in the market place, which will affect pricing. So, until the delinquency over-hang is resolved, we’ll continue to have downward pressure in pricing, and some uncertainty.

My mantra remains in place: while the “old economy” was all about using “other people’s money,” the “new economy” will be all about “real money for real people.”  And the move from one to the other will take time, and it will involve some pain.

PricewaterhouseCoopers' Korpacz Real Estate Investor Survey: this a survey of real estate investment trusts, pension fund advisers and private equity firms (all of which focus primarily on institutional quality real estate). They are investors in commercial real estate

• CRE overall capitalization rates to hold steady during the next six months in 19 of 30 markets
• Marketing time on properties further dropped in the survey as bidders turned out to purchase quality assets
• Looming debt maturities remained a top-of-mind issue, and they believed out-of-balance loans coming due in the near term will present major hurdles for owners and lenders (and thus opportunities for investors)
• Sales in 2010 will be slow (by historical standards) but that banks appeared more willing to lend than in 2009, even with very conservative underwriting and more equity needed to secure debt
• Vacancy rates in 2010 will increase but not as steeply as in 2009, and 2010 rental rates will decline in most markets, to a lesser degree than in 2009, as property visits and tenant interest show slight improvements (over 2009)

MBA 4thQ (2009) Commercial/Multifamily Delinquency Report: this report looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities, life insurance companies, Fannie Mae and Freddie Mac. The MBA reports that “together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding.”

• From the third quarter to the fourth, the 30+ day delinquency rate on CMBS loans rose by 1.63% to 5.69%
• The 60+ day delinquency rate on loans held in life company portfolios decreased by 0.04% to 0.19% [but remember: life companies actively "manage" possible future defaults by selling notes in advance of anticipated problems; and they quickly modify or foreclosure defaulted loans]
• The 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae rose by 0.01% point to 0.63%
• The 90+ day delinquency rate on multifamily loans held or insured by Freddie Mac increased by 0.04% to 0.15%
• The 90+day delinquency rate on loans held by Federal Deposit Insurance Corp.-insured banks and thrifts rose by 0.49% to 3.92% [remember this:  +50% of all commercial mortgage loans are held by this group]

Fitch’s report “CMBS Year End 2009 Servicing Update: Resolution Trends, Special Servicing Loan Volume & Staffing Levels”:  This report focuses on CMBS loans that are rated\monitored by Fitch and that are in special servicing.

• Specially serviced CMBS loans increased to $74 billion by the end of 2009, up from a $4.4 billion low at the end of 2007.
• CMBS special servicers resolved nearly $8.7 billion last year (roughly 11% of the “full balance”) [frankly,, the “full balance” phrase loses me - unless it means the total or largest amount of loans in special servicing during 2009]
•  While CMBS servicers resolved more than 50% of loans in 2009 compared to 2008, a substantial increase in special servicing volume caused resolutions to fall from 31% to 11% last year
• An 87% overall average recovery rate in 2008 dropped last year because of more distressed assets, lack of liquidity and declining property values (these means more subordinate CMBS bondholder classes were wiped out)
• More than 50% of unpaid principal balance CMBS transferred to special servicing because of “imminent default” (i.e., not from a monetary or non-monetary default but from a foreseeable future default)
• 75% of modified specially serviced loans were sent back to master servicers as performing or paid-in-full with nearly no losses

Fitch’s report on Hotels: In this report, Fitch states that CMBS loans rated by it and secured by hotels show no signs of slowing down.

• A large concentration of hotel loans mature next year and in 2012
• Projected delinquencies will double (from current levels) and by 2012 will hit 25% to 30% of all hotel loan balances in CMBS loans rated by Fitch (current hotel delinquencies stand at 16.6%)
• More trouble is ahead: over 75& of floating-rate hotel loans originated during 2006 to 2007 mature in 2011 and 2012 into much higher fixed rates

If you have other sources of interesting information on CRE delinquencies, please post a comment below.

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(This is the last in a series covering the MBA-CREF convention.  In contrast to the first two days [link Day 1] [link Day 2] and our convention "preview" [link], this last posting focuses on the two polar extremes of the convention, and the industry.)

For Chris Nixon [link to bio] and myself, day 3 of the MBA-CREF convention (yesterday, Weds.) was filled with meetings with significant industry players from two distinct groups: special servicing and life insurance companies.

We listened for the answer to one specific question from each group, which for us (and perhaps for you) is “the” question.

• Special servicing: what tips or advice can you give a borrower in 2010?
• Life insurance company: will your loan allocations differ from your 2009 performance? (Read: will we see any “improvement” over 2009?)

Here is our summary of the answers given to us.

Special Servicing Tips

Not surprisingly, the tips were very similar to those articulated at the recent CMSA January Conference [link to 2nd day posting].    However, we heard enough “new” or different answers to craft an expanded list of tips.

True, the answers vary depending upon the particular servicer, the project, the carveout sponsor, the tenants, etc.

But putting it all together, here are the tips:

Do This:

• be nice
• send all information in; be open and transparent
• sign a pre-negotiations agreement
• keep paying cash flow
• have a reasonable, cogent plan BEFORE you contact the lender or servicer (show us that you are in a good city\market, with good tenants, good DSC, etc.) 
• show up with $ (to right size the loan) when you ask for a debt restructure
• default with dignity (i.e., have a "real" default and then be truthful)

Do NOT Do This:

• tell lender or servicer that you're "partners"
• show up with a sham balance sheet
• stiff or abuse your other lenders and the expect us to expect otherwise
• tell lender or servicer that you're a good borrower
• "fish" for information or for terms of a plan that will be acceptable
• cry
• hold lender or servicer hostage
• ask for any of the cash flow (nor a cash flow mortgage)
• fly in on a private jet
• offer a bribe
• rob Peter to pay Paul
• launch off on a religious sermon (caveat: "the special servicer knows that it is going to Hell – every day is Hell")
• ask for any return on the new equity infusion made in borrower 

(For our other postings on CMBS special servicing, use the “search” function on the right side – and search terms such as “special servicing.’)

Life Company Loan Allocations for 2010 (& comparison to 2009)

The message generally was consistent from all our life insurance company contacts:

• in 2009, roughly 30%-45% of the allocation was utilized to refinance the “best” loans\relationships in the portfolio
• in 2009, not all of the allocation was utilized . . .
• but since corporate spread have dramatically dropped in the last 6 months, mortgages are a relative good investment; so . . . 
• there is hope that the mortgage allocation will be fully funded in 2010 . . .
• however, probably the same percentage of the allocation (30%-45%) will be utilized to refinance the “best” loans\relationships in the portfolio . . .
• and, the allocation amount is not near the level seen during recent years
• the limited funds available for new loans will target the narrow bandwidth of the best projects and sponsors (high Debt Service Coverage or DSC; good Loan to Value or LTV; good balance sheet of the sponsor; good tenants; good market position; etc.)
• since large loans to single-sponsor borrowers (and not multiple loans to different sponsors) typically fit this narrow bandwidth, 2010 could be the year of the large loan for many life insurance companies

Add all of this up, and it is clear that with a muted allocation amount and the commitment to utilize a significant part of it to refinance the current portfolio, the total amount of credit available for 2010 from life companies is small (relative to demand). 

The story here reminds me of the message from the CMSA January Conference: the recent CMBS issuances are good news for Wall Street but “no” news (i.e., no help) for Main Street.

The same should be said of the Life Insurance Company mortgage loan allocations: it sounds good, but really?

So, the message from both the CMBS Conference and the MBA-CREF Convention sync very nicely. (As predicted in my earlier posting?) [link]

If the mantra during the ‘90s and ‘00s was “other people’s money” (or “commercial subprime”), the mantra for the new economy is “show me the hard equity” (or “real money for real people”).

Yes, we’re returning to real estate fundamentals.

And since a large percentage of CRE is over-leveraged (a condition that I call "subprime commercial"), we circle back to the tips on special servicing . . .

If you see it differently, or have something to add, please post a comment below.

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This past Friday (October 31, 2009), the Federal Financial Institutions Examination Council (website) released a major policy statement giving guidance, and articulating general principals, for the distressed commercial real estate debt market.

The report is a "must" read: PDF.  (Footnote #1 to the report lists the Federal & State Regulators - visit the FFIEC website for the complete list.)

The introductory paragraphs and the Article I "Purpose" statement contain some very, very interesting (even bold) statements:

• " . . . financial institutions and borrowers may find it mutually beneficial to work constructively together"
• "The regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower."
• "Financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of borrowers’ financial conditions will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classifications."
• " In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance (emphasis added)."

This is a must read for everyone involved in CRE.

This is very different from the regulatory guillotine used in the late 80s & early 90s.

And the policy statement should have major implications - and undoubtedly will influence regulatory bodies such as the NAIC (which loosely governs commercial mortgage investments by life insurance companies) (website) and other "unregulated" financial institutions.

Please post your comments.

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Sick and beyond tired of the inflexibility of CMBS servicers in making needed modifications to CMBS loans that we all know are in the ditch?  Help might be here:

On September 15, 2009, the IRS and the Department of the Treasury issued three pieces of guidance relating to commercial mortgage loans held by a securitization vehicle (a CMBS loan).

• The final rules (see PDF entitled "TD 9463") regarding "Modifications of Commercial Mortgage Loans Held by a Real Estate Mortgage Investment Conduit (REMIC)" include changes in collateral, guarantees, credit enhancement of an obligation and changes to the recourse nature of an obligation.  These rules expand the list of exceptions that will not be considered "significant modifications" of a CMBS loan obligation held by a REMIC.
  
• The IRS also issued Revenue Procedure 2009-45 (PDF), which is a final ruling that describes the conditions under which modifications to certain mortgage loans will not cause the IRS to challenge the tax status of REMICs.  Specifically, note the factor that allows a servicer to take action more than one year prior to maturity.  Furthermore, a servicer is able to rely on information provided by the borrower unless it has knowledge to the contrary.  More importantly, while past performance of the loan is a factor in assessing risk, a "significant risk of default" (based upon a "reasonable" belief standard) can be found by the holder or servicer even if the loan is currently performing (This is great news for principals who are keeping the loan payments current from sources other than rent).
  
• In addition, the IRS and Treasury issued Notice 2009-79 (PDF) and are requesting comments on what additional guidance, if any, is needed regarding modifications of commercial mortgage loans held by investment trusts.

Additional information can be found on the CMSA's Web site (link to REMIC Reform).

Hopefully, these guidelines will allow CMBS loan servicers and borrowers greater flexibility to assess risk and allow for appropriate modifications to CMBS loans.  It is desperately needed.

We know that the public is in no mood to support a "rescue" plan for commercial real estate.  Maybe,  just maybe, "tweaking" the tax code like this will be the approach that will be taken by the government—sort of a "back door" rescue plan for commercial real estate.  However, I believe that it'll take much, much more than tweaks like this one to help commercial real estate to QUICKLY recover.

Kudos to the broad cross section of the commercial real estate industry that worked on this initiative (Mortgage Bankers Association, Commercial Mortgage Securities Association, ICSC, Real Estate Roundtable, and others).

If you have any questions or other information, please post a comment.

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Guest Writer: Brenda Brown, Winstead PC

More from ourTough Times FAQs series:

FAQ #4 -  Do I need to reduce the commitment amount after sending a Notice of Default?

• Typically, no – once the loan is declared to be in default, or once the maturity of the loan is accelerated, the lender has no on-going funding obligation – but confirm this in the documents.
• The lender typically is not required to fund current loan allocations or grant new loan allocations.
• Communicate clearly in writing to the Borrower that the lender has no further obligation to the fund and negotiations, inspections, administrations and even making future draws during a draw period (whether under a construction loan or a partial disbursed loan) do not amount to waivers of pre-existing defaults or can be considered obligations for future fundings.

FAQ #5 -  After a Default Notice, should I send statements showing Regular Monthly Interest or statements showing interest at the Default Rate?

• Statements to the borrower should reflect the Default Rate of interest (rather than the prior regular interest rate), late fees, and any other fees due the lender (such as legal fees) – all of which usually do not appear in the "standard" statement.
• So, typically it is best to STOP sending the regular monthly statements.

FAQ #6 -  What else should I put in writing?

• Agreements Regarding Interim or Protective Advances
• Forbearance Agreement

All of these first six questions underscore the fact that the status of the property and the loan must be looked at with current and fresh eyes so that the opportunities for solutions are enhanced, and the risks of encountering questions of waiver are avoided.

To read the entire Tough Times FAQ series, please click here.

Please post comments or questions below.
 

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Guest Writer - Christopher T. Nixon, Winstead PC

In my earlier posting, I introduced this topic, and addressed several “challenges” in the meaning of the MAC clause itself in the particular factual setting of a distressed debt: is the change “material?” is the change “adverse?”
I then noted that a lender should be prepared for the borrower to contest such default declaration in the event the answer to any of the following questions is “Yes.”
Here are several more questions:

2. Do the loan documents contain a subjective MAC clause and require the lender to act reasonably or in good faith?
If the loan documents contain a subjective MAC clause, the borrower should review the loan documents to determine if the lender has a duty to act in "good faith" in determining whether a "material adverse change" has occurred, or whether such determination must be "reasonable." Furthermore, in interpreting the meaning of a subjective MAC clause, the parties should each determine whether "reasonableness" and "good faith" standards are implied by the particular state laws governing the loan documents.

3. Are there multiple inconsistent MAC clauses in the loan documents?
In the event the loan documents contain multiple inconsistent MAC clauses, a question of fact may arise as to whether the MAC clauses are enforceable.

4. Is the language of the MAC clause unclear?
The parties should pay particular attention to word choice and consider every word in the MAC clause in light of the circumstances of the particular transaction. Exacting language is particularly critical with respect to any negotiated carve-outs from the MAC clause. In addition, all applicable definitions must be carefully examined.

Please post a comment with any questions, comments or you own experience – real or hypothetical!
 

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Yesterday (Thursday) was the second, and my last, day of the conference.  As I did with the first day of the conference, I summarize some of the sessions.  So, here's the executive summary:

From a session on bankruptcy issues:

• as reported by the Commercial Mortgage Securities Ass'n in its press release, the bankruptcy court in the General Growth Property bankruptcy issued a good ruling on Wednesday.  The ruling recognized the integrity of the special purpose vehicle (or single purpose entity; also called "SPE") utilized by GGP in the ownership of each mall in its portfolio. (Recall that many GPP malls are owned by a SPE subsidiary of GGP.)
• for detail on the importance of the SPE structure to the commercial mortgage lending industry, and for an understanding of the structure itself, take a look at the brief filed by the CMSA in the case.
• briefly, the debtor-in-possession financing recognized the validity of the SPE structure: it did NOT place a lien on each mall (which are owned by separate SPEs) and the first-lien holders of each SPE-owned mall were given a first-priority lien on the cash collateral from their mall collateral
• next step of interest in the case: the hearing on the bad faith filing issues.  Was it proper for the solvent SPE to be included in the bankruptcy of the parent GGP?

From a session on the challenges in complex transaction structures:

• one of the first tasks in handling a distressed loan is identifying the parties and their issues.  For example: (1) who\what are the creditor & borrower issues? (2) who\what are the co-lender issues? (3) and if there is a separate servicer, what are the terms of the servicing agreement? The answers: find the documents.  Read the documents.
• the many, varied structures of the credit stack present challenges simply in understanding the relationships between all of these parties.  Here is a short list of common structures: 1st lien & mezzanine debt (with one or more mezz debt positions; and each mezz debt could have all of the following structures); A note and B note (and the A note might be securitized); A1, A2 and A3 note (and the A1 note might be securitized); "true" participations of any of these notes (if not securitized); etc. Some of these credit stack structures will give you a head ache.  And often the borrower has NO knowledge of them - although a sophisticated borrower might recognize some of the clues pointing to a complicated credit stack.
• for credit stacks that include securitized debt, the rating agency faces multiple challenges: (1) post-closing surveillance (in that it often does not have access to loan documents covering discrete loans in the credit stack); (2) issuing confirmation letters ("no down-grade letters") can be problematic for the same reason; (3) intercreditor agreements and loan documents might not comply with rating agency requirements
• special servicers in securitized loan pools are being changed by the controlling class holders and the B note holders.  This can result in two different special servicers: one appointed by the controlling class holders for the entire pool; and a second by the B note holder as to the notes that it has first-risk loss.  Another complication, of course, is that the special servicer must be approved by the applicable rating agency.  And to further complicate it all, often the intercreditor agreement(s) have a higher rating standard than the standard required by the rating agency monitoring the pool.
• some of the credit stacks are so complicated, that it is difficult for the servicer to determine "who" should receive notice of a change in servicing (or "who" should receive any other notice).  One answer is to follow the money: if the master servicer is the paying agent for the pool, the servicer's treasury group has contact information.
• against this complicated back drop, borrower's often communicate to the incorrect lender! And have difficulty in indentifying "who is who" among this confusing group of players.
• in a prior posting, we commented on the question of whether a borrower should intentionally default a loan that has been put in a securitized pool.  The panel noted these dire consequences for a borrower in special servicing: (1) default interest will accrue; (2) late fees will accrue; and (3) workout land is NOT "borrower friendly" - and if borrower does not obtain its desired result, there is no "free pass" back to the safety of master servicing.
• for loans with "springing" lock box features: borrowers are refusing to do the paper work to create lock boxes.  This results in a covenant default under the loan, which triggers a transfer of the loan to special servicing.  Also, on several loans, local banks (who have long-standing relationships to the principal behind the borrower) have closed dormant, "springing" lock box deposit account - which is a real problem when the lockbox "comes to life" and the master servicer attempts to implement the lockbox structure.

From a session on loan surveillance:

• each point of the mortgage compass is requiring more and better information: bond holders, rating agencies, federal and state regulators, investment committees, etc.
• loans are being reviewed more often (even monthly)
• all of this is a major difference from the late '80s & early '90s
• what are some of the warning signs of a loan going "bad"? (1) exhausting a debt service reserve (recall: this type of reserve was used when a project was not stabilized); (2) exhausting a contingency line item (in a construction loan); (3) change in ownership of any portion of the credit stack (this is often difficult to monitor); (4) low utilization\occupancy of space by tenants; and (5) ___________
• surveillance needs to have a "forward" looking component, such as: (1) future lease rollover; (2) local market information and trends (new construction of competing projects; tenants looking for space; etc.); (3) sponsor level debt information (amount; maturities; etc.); (4) free rent and rental rate trends in the market; and (5) _________
• use "free" resources available on-line
• one problem for servicers: each lender seems to have their own, unique reporting form
• one lesson in this "new" economy: real estate really is unique.  Thus, people need to understand and evaluate each tenant, project, market and principal.
• one panelist briefly mentioned the all-important "mortgage experience adjustment factor" - which is a risk-based capital concept governing insurance companies who hold commercial mortgage debt.  Some time in the near future we'll blog on that mind-boggling concept - and the draconian effect that it has upon insurance companies and their mortgage portfolios.  It is horrible.

This is my last posting on the conference.  It met my expectations.  Everyone agreed: it was the "best" servicing conference in years - undoubtedly because this is the worse real estate market in years.

Today it is back to the office, and the nitty-gritty of workout world.

Please post your comments, suggestions or questions below.

P.S.: back to the restaurant review thing - although there are "cooler" places to go in New Orleans, if you stay at the Hilton Riverside (the conference hotel), then you're immediately adjacent to the Riverwalk Marketplace mall.  The Crazy Lobster (504.569.3380) is a free-standing bar and restaurant on the Riverwalk.  It is a good place to catch a breeze and a change of pace.  Like many places in NO, it has live entertainment in the evenings.  We escaped the conference for several lunches at the Crazy Lobster.  It is a short (100 yards?) walk from the Hilton.  (And yes, it is a GPP mall - and probably owned by an SPE.) (See discussion above on GPP and SPEs.)

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So, you can readily see that your collateral is headed south. Your job is to jump on it and come up with some solutions. Before you jump into action, it would be wise to take a breath and consider what the default situation is and why you have the right to start taking action – now, as opposed to later.

Types of Defaults
Generally, borrower defaults fall into one of two buckets – monetary and non-monetary. Monetary defaults involve the borrower's failure to pay money to the noteholder. Non-monetary defaults involve the borrower's taking some action which is prohibited or failing to take some action which is required by those lengthy "covenants" that appear in the loan documents. Depending on what your loan documents say, either type of default may be automatic – without any sort of warning notice – or may require formal notice and a period of time for the borrower to cure the shortcoming. Generally, loan agreements require more from the noteholder in the way of advance notice and time for cure when non-monetary defaults occur than when monetary defaults occur.

Creditor rights are limited before default
It seems simple, but worth stating – your borrower is entitled to own and operate the collateral property without lender interference, so long as she is living up to the terms of the deal reflected in the loan documents. This is true, even if you know the crash and burn is inevitable. The noteholder has no right to interfere with the collateral and its operations unless and until there has been a borrower default. That bright line event is important to a myriad of rights between borrower and noteholder, including whether the debt can be accelerated, the right to collect and hold rent and income from the collateral, and whether default interest begins to accrue – to name just a few.

Bright line of default
Since so many issues turn on default, careful loan servicers will strictly comply with loan document terms before asserting loan document rights. When possible, act only on clear-to-identify (and prove in court, if it should come to that) defaults. Between borrower and noteholder – the easiest to identify and prove is a monetary default. Either the borrower has paid or it has not. Declaring a default and taking your workout to the next level of hostilities on non-monetary, covenant breach defaults is often a risky proposition. Many of these defaults are subject to second guessing and after-the-fact paper grading. – and are therefore harder (and more costly) to prove if you are ever put to the test in a court of law.

Convert the non-monetary to monetary
Although it may take some time and additional effort, many non-monetary defaults will become monetary with some additional notices and time. For example, if the collateral is not being properly maintained in your opinion, you may be able to give notice of non-monetary default. But you can be assured of an argument about this subjective call if your borrower or guarantors have any fight in them. Consider adjusting (in strict compliance with the loan documents) the monthly amount of the borrower's reserve for replacement escrow to ensure that sufficient funds are available to spend to maintain the collateral. Chances are good that the circumstances could then mature into a monetary default – which will be much easier to defend in the future.
 

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Guest Writer - Nelson Block, Winstead PC

3rd in a series of 3 postings
(Part 1: Establishing a Security Interest in Receivables)
(Part 2: Funds in Deposit Accounts and the Account Control Agreement)

In order to capture checks sent in for payment, the lender will often create a lockbox account, usually at the bank where the borrower does business. The lockbox agreement provides that all envelopes addressed to the borrower that are received at a post office box under the bank’s control – the lockbox – will be opened and checks deposited in a special account which is either set up with the lender or covered by an account control agreement. Letters and other items received in the lockbox are sent to the borrower.

In addition, account debtors are notified to pay their accounts by mailing their remittances to the lockbox. This arrangement is “full notification,” as distinguished from an agreement with the borrower to only notify its customers after an event of default. Lenders refer to this full notification feature, coupled with the lockbox and deposit account, as “dominion of funds” because the lender now has a security interest, as well as some measure of control, over the entire process by which the borrower’s cash flow is received.

Once received, the lender may wait for one to three days before crediting the loan balance in order for the checks to go through the clearinghouse process. Borrowers sometimes contract for these clearing periods, or “float days,” for a time that is longer than may actually be required for checks to clear, permitting the lender to continue to charge interest on the loan balance. Once the cleared funds are credited to the loan, the lender will be in a position to advance fresh funds upon the purchase of inventory or the creation of new accounts receivable.

If you have any unusual experiences or stories on these topics, please post a comment.

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Guest Writer - Nelson Block, Winstead PC

2nd in a series of 3 postings
(Part 1: Establishing a Security Interest in Receivables)

But the ordering created by the filing of financing statements only provides protection when the collateral is accounts. When the customer who owes on the account – the “account debtor” – pays by sending the borrower a check, the filed financing statement does not perfect the lender’s security interest in the funds represented by the check once it has been placed in the company’s bank account. At that point, the nature of the collateral changes and, unless the proceeds are “identifiable cash proceeds” which can be traced by the lender, the lender must have a security interest in the bank account. If the lender is the bank where the account is maintained, then the creation of a security interest will be sufficient to perfect. Usually the bank lender’s documents will also contain a right of set off, which is not a security interest but gives the lender the right to take the funds in the account upon a default in the loan. If the lender is not the bank where the account is maintained, then in addition to the lender’s security interest, it will need an account control agreement. This is a three-party document signed by the lender, the borrower, and the bank where the account is maintained. The most significant feature of the account control agreement is the bank’s agreement to honor payment instructions only from the lender, not from the borrower, after the lender has given written notice to do so.

Next: Lockbox Accounts, Full Notification and Dominion of Funds

If you have any unusual experiences or stories about deposit accounts and control agreements, please post a comment.

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Guest Writer - Nelson Block, Winstead PC

1st in a series of 3 postings

A business’s accounts receivable are one of its most valuable assets, not only to the business but to its lender. In an ongoing business, the continual turn of accounts receivable on a frequent basis make them a reliable source of revenue and, therefore, of collateral support for financing the business.

The steps necessary to secure the lender in its position in the receivables are sometimes confusing to the business owner. Here are the steps by which a lender obtains its secured position in its customer’s accounts.

In the case of businesses which sell inventory, the receivable is created when the inventory is sold on credit. The Uniform Commercial Code (“UCC”) governs security interests in inventory, accounts receivable and other kinds of personal property. It provides that a lender establishes or “perfects” its position against other creditors by filing a financing statement (form UCC-1) stating the type of collateral with the proper filing officer – the Texas Secretary of State’s Office for entities formed under Texas law. The first creditor to file a financing statement has first priority. In such cases, the process of gaining collateral in the “accounts” (the UCC term for accounts receivable) begins even before the inventory is sold. Between a lender who has a secured position in inventory and its proceeds filed before a lender who has security in accounts, the inventory-and-proceeds-secured lender takes priority over the accounts-secured lender.

Next: Funds in Deposit Accounts and the Account Control Agreement

If you have any unusual experiences or stories about securing a lien on account receivables, please post a comment.

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In a prior posting, I mentioned the need to watch for local legislative and regulatory\administrative trends or changes.  But don't forget to watch for changes at the court house, too.

We've been watching, waiting and even researching this one: an assertion that Borrower would pay at maturity of the commercial mortgage loan, except that the credit crisis makes it "impossible" for the Borrower to find another loan to pay-off the matured debt!  This is NOT a "new" legal theory.

In the "old" economy, such as argument was, well, perceived as silly in the context of commercial mortgage finance.  What fool will argue impossibility when money is plentiful?  And, today there still is money available - it just costs an arm and a leg (from equity sources and from debt sources).

However, in the "new" economy (or whatever you want to call it), the argument becomes more interesting. 

It's just begging for the right jurisdiction, the right facts, the right judge, etc.  Maybe a jurisdiction where charging an arm or a leg will no longer be tolerated.  Maybe a jurisdiction with an implied covenant of good faith and fair dealing, and a "new" judiciary willing to extend the concept in a crisis . . . .

This "impossible" assertion has bubbled up on two recent cases: (i) a recent posing at The Dirt Lawyer's Blog describes a case in Chicago involving a "dead" acquisition of an office building located at 180 North LaSalle in Chicago, and in passing refers to a case that we've been watching, (ii) the Trump Tower case, also in Chicago, but involving mortgage finance issues.

Succinctly stated:

• I can't buy this office building (180 North LaSalle), because I can't find reasonable funds
• I can't pay off the loan on this building (the Trump Tower), although I can continue to make the monthly payments, because I can't find reasonable funds

Strangely, Chicago seems to be ground zero.  (What 's going on in Chicago?  Recall the River East case in late 2006, which involved a Federal trial court ruling that a yield maintenance clause was an unenforceable penalty under Illinois law.  Of course, the Seventh Circuit Court of Appeals reversed the trial court in 2007.)

I can think of several other jurisdictions where this argument might find a home - if not in Chicago.

From my perspective, this is exactly the type of innovative lawyering that we'll experience in these tough times.

You need to get ready for change from the legislatures, the administrative\regulatory agencies, and the courts.

• are you seeing the "impossibility" argument in any cases where you operate?
• are you hearing borrowers starting to beat the drum on this one?

Please post your comments and observations.

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By Guest Writer – Christopher T. Nixon, Winstead PC

CMBS Master Servicers typically lack the ability to modify a CMBS loan to preemptively address a potential loan problem. A CMBS borrower frustrated with such inability may elect to purposefully default on the loan to circumvent the restrictions placed on the Master Servicer and force the transfer of the loan to the Special Servicer. The borrower's expectation is that the Special Servicer will have the ability and agree to modify the CMBS loan to address the potential loan problem.

Risks:  If it is apparent to the Special Servicer that the borrower intentionally defaulted on the loan, the Special Servicer may elect to accelerate the debt and pursue foreclosure of the real estate collateral. The Special Servicer may determine that an aggressive foreclosure of the defaulted loan will maximize recovery for the bondholders as compared to attempting to negotiate a loan workout with an untrustworthy borrower acting in a manner detrimental to the economic interests of the REMIC Trust in which the CMBS loan is pooled.

Potential Solution:  Rather than taking the inflammatory step of defaulting on the CMBS loan to reach the Special Servicer to address a potential loan problem, a borrower should consider discussing the potential loan problem with the Master Servicer. If the Master Servicer determines that the loan problem constitutes a "reasonably foreseeable default," the Master Servicer may have the ability under the Pooling and Servicing Agreement (PSA) to transfer the loan to the Special Servicer at that time (without waiting for an actual loan default to occur) to address the loan problem. A Special Servicer may be more inclined to consider a loan modification as compared to a foreclosure if the Master Servicer and borrower present the loan problem to the Special Servicer at this stage. The effectiveness of this approach will largely depend on the quality and sophistication of the Master Servicer and Special Servicer. Given the current bad economy, Master Servicers are increasingly aware of the need to proactively discuss borrower loan problem concerns and to involve the Special Servicer early in such discussions.

Tips for the Borrower:

• Be honest about the potential loan problem when discussing it with the Master Servicer.
• Provide sufficient information to the Master Servicer for it to objectively determine that the potential loan problem constitutes a "reasonably foreseeable default."
• Do not create a potential loan problem merely to seek economic concessions from the Special Servicer. The borrower should have a sincere concern that a loan default is likely to occur if the loan problem is not promptly addressed.
   

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(This is part of a series of postings from the 2009 MBA-CREF convention in San Diego.) (Trends; Arriving;  Day One; Day Two; Day Three)

My time at the convention has been a series of "firsts" for me:

• "live" blogging on Day Two during the Opening Session talk by Paul Begala of CNN and Tucker Carlson of MSNBC (thereby cementing, and forever embracing, my "inner geekness")
• after experiencing the credit crisis first hand in the EU last fall (Before; Day 1, Day 2, Day 3, Day 4 & Last Day), I completed the high-level credit crisis perspective by immersing myself in it here at the MBA-CREF conference - after years of drinking from the "frothy" side of the real estate finance cycle
• finally, this is the second blog entry for today - the last day of the convention.  I've never done two of these in one day.  (. . . need to find a hobby.)

But don't think that I've saved the "best" for last; because there is a "positive" side to the new economy.  There is opportunity in chaos and change.

However, I am continually approached by people concerned about the inability of CMBS borrowers to locate financing to refinance their CMBS loan.  Notwithstanding efforts by the CMSA and the MBA to educate the industry on this product (such as their brochure explaining CMBS debt), much confusion and misinformation exists about CMBS loans.

So, this last entry will focus on a session here at the convention that addressed the myths of CMBS servicing . . . . "click on" to read on . . . .

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(This is part of a series of postings from the 2009 MBA-CREF convention in San Diego.) (Trends; Arriving;  Day One; Day Two; Day Three)

It is no surprise that the convention is markedly different from previous years.  Everything has changed (unfortunately that's almost NOT a terrible understatement): lenders have a new focus (and those with "real" investment allocations to lend are few in number), servicers are under scrutiny in the face of looming defaults, and mortgage bankers are seeking ways to serve (read "save") their best borrowers.

Kudos to the MBA for directly addressing these changes and challenges.  The sessions were informative.  The discussions were frank.  Too bad attendance at the convention is down.

Here are some of the topics, observations and comments:

• Servicing is servicing.  While servicing CMBS clearly has unique twists and challenges (such as the servicing standard of care, "tension" among the investor classes, etc.), portfolio lenders and CMBS servicers share many common hurdles in dealing with troubled loans.  (My next post will address some frequently asked questions about dealing with troubled CMBS loans.)
• The erosion of credit and value is a critical challenge.  Yesterday's debt service coverage and loan to value definitely is not today's story.
• The stack of first lien mortgage, mezzanine debt and even holding company leverage, which I affectionately call the "Other People's Money" mantra of the "old" economy, is yesterday's story and today's headache.  In prior conventions, sessions focused on these "tools" of the finance market.  This convention didn't even mention it - for good reasons: we're now dealing with the hangover.
• It is difficult to identify the correct asset disposition strategy when relative values are difficult to determine - values seem to change weekly.  In all sectors (products) and markets, appraisal valuations are problematic.
• Life companies are placing greater emphasis on debt service coverage, with less reliance on loan to value measures.
• The ability of borrowers to pay off a loan at maturity (the inability to pay is called a "maturity default") is under question due to the fear that community and regional banks are tapped out in their ability to place mortgage debt on their balance sheets.  And since these loans are limited term floaters, with equity pay-downs and guaranty agreements, they are only a temporary "fix" to the larger credit problem.  In other words, the boomerang remains in the air.
• Generally, the strategy of CMBS servicers and portfolio lenders is this: extend (if possible), wait and increase surveillance.  However, an extension has a price: new underwriting of the market, the project and the sponsor, with an extension fee, new reserves, lock box structures, amortization, etc.  An extension needs to make sense.
• Regulatory reform is coming.  For the life company, this means possible changes to risk-based capital (and the dreaded "mortgage experience factor") and possible "opt in" Federal licensor.  For the CMBS servicers, this means possible REMIC reform (again) addressing seller financing, control over the special servicer, etc.
• The need for greater information flow.  For the life company, this plays out in rating agencies asking for loan level information - like the information available in CMBS pools.  This second guess is totally new for life companies.  (For years, I periodically ask my life company clients: do you want outside counsel to prepare a loan and property summary like the ones we prepare when we close a CMBS loan? The prediction here is that the time has come for this change.)  For CMBS servicers, investors are asking for even more loan level information.  They've learned that they can not simply "trust" the certificate rating - they need to understand the current status of each loan in the pool (beyond the data contained in the current investor reporting package).
• Note sales are problematic.  On the CMBS side, they have slowed, with a wide gap between the bid and the ask price.  It was noted that there exists a correlation between AAA CMBS spreads and the volume of note sales.  Thus CMBS prices need to stabilize in order for loan sales to increase.  On the portfolio lender side, the risk-based capital rules literally rob the portfolio of the ability to craft loan restructures that place the lender in a position to increase its yield (and profit from a rebound in the market).
• Life company underwriting is now a return to the basics: 1.50x minimum debt service coverage; maximum 55% maximum loan to value (slightly higher for multifamily); shorter term; avoid hotels; beware of retail and "transitional" projects (which is a problem for banks seeking takeouts for construction loans); closely examine employment base of local market; scrutinize debt maturities of the principal; consider the use of lock box and SPE structures; less reliance on appraisals (due to valuation challenges) and more reliance on debt service coverage; etc.

This convention has been "rich" - not in the sense of money being thrown at deals (as in prior years); but rich in information, determination and the resolve to navigate these challenges.

The unspoken mantra seems to be: we can do tough times.

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Guest Writer – Christopher T. Nixon, Winstead PC
(2nd in a series of 2 postings)

In my prior posting (Part 1),   I covered some of the key differences between a workout of a CMBS loan and a workout of a portfolio loan.

Here are some more:

• Flexibility.  Due to REMIC rules and the restrictions and limitations set forth in the PSA, a Special Servicer is not able, or has less flexibility than a portfolio lender, to substitute collateral, take additional collateral, capitalize past due interest, bifurcate the debt, take an equity or contingent interest position, operate an REO property, or lend additional money as a loan default solution.
• No CMBS Loan Dragnet Clause.  The borrower has no other source of repayment for a Special Servicer to consider in the workout of a CMBS loan, which may not be the case in a portfolio loan workout scenario.
• SPE Provisions.  A CMBS loan borrower is bound by bankruptcy-remote SPE provisions in its organizational documents.

a.) Bankruptcy Remote.  There are structural impediments to the borrower's ability to file bankruptcy. Even if the borrower files bankruptcy, the CMBS lender is likely the only secured creditor.
b.) Single Purpose.  The borrower has no ability to substitute or add collateral to address a CMBS loan default.

• Carve-out Guaranty.  While many portfolio loans are recourse loans, CMBS loans are typically non-recourse. With respect to a CMBS loan, the borrower and the principals of the borrower may face recourse liability for certain bad acts described in the loan documents.
• Cash Management.  Many CMBS loans have a lockbox cash management component, which facilitates the control of cash collateral. Portfolio loans typically do not have any such component.
• Regular Borrower Financial Reporting.  While portfolio loans typically do not have rigid borrower financial reporting requirements, regular borrower financial reporting requirements of a CMBS loan keeps the Servicer apprised of the financial status of the real estate collateral. The information in such financial reports may be critical to a Special Servicer in making an informed decision about how to address a loan default.
• Property Management Control.  CMBS loans typically assign to the lender the right to replace the property manager with a lender-approved property manager. Portfolio loans typically do not have any such assignment provision.

The differences between the two types of loans are significant. And this list is not all-inclusive. So, be careful – and as self servicing as this sounds, use legal counsel who is experienced in handling CMBS loan workouts.

If you have any questions or  suggestions, please post a comment.
.
 

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Guest Writer – Christopher T. Nixon, Winstead PC
(1st in a series of 2 postings)

In the commercial loan default scenario, CMBS Special Servicers are not able to provide to borrowers many of the accommodations that may be provided to borrowers by portfolio lenders. CMBS Special Servicers are subject to many more restrictions and limitations than to which portfolio lenders are subject in a loan default situation.

Understanding the key differences between CMBS loan workouts and portfolio loan workouts will facilitate a borrower's efforts in attempting to address a CMBS loan default with a Special Servicer. Some of the key differences between CMBS loan workouts and portfolio loan workouts are as follows:

• Standards. A portfolio lender applies its own individualized standards in addressing a loan default; and a third-party servicer will administer the loan in accordance with the servicing standard articulated in its servicing agreement with the lender. A CMBS Special Servicer must administer the loans in accordance with the Servicing Standard set forth in the applicable Pooling and Servicing Agreement (the "PSA") and comply with REMIC rules to protect the federal income tax-free status of the REMIC Trust in which the CMBS loan is pooled.
• Continuity of Relationship. A portfolio loan has continuity in the origination, servicing, and workout of the loan. The portfolio lender has an ongoing relationship with the borrower and retains tight control over any third-party loan servicer. On the other hand, a CMBS loan involves the fragmenting of the obligations, responsibilities, and liabilities for the loan between multiple parties involved.
• Workout Goals. A portfolio lender attempts to preserve the value of the asset and, in some instances, its relationship with the borrower. A CMBS Special Servicer attempts to preserve the integrity of the Trust, while maximizing recovery for the bondholders.
• Preemptive Abilities. A portfolio lender may make additional loan advances or enter into preemptive loan modifications to address a potential loan default. A Master Servicer typically lacks the ability to preemptively address a potential loan default.
• Due Diligence Review. A CMBS Special Servicer's review of due diligence may be more challenging than that of a portfolio lender because the Special Servicer is often not familiar with the loan before the transfer of the loan from the Master Servicer to the Special Servicer (i.e., the "Servicing Transfer Event").

My next posting will list several other differences.  If you have any questions or suggestions, please post a comment.
 

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Once a month, our regular group of authors discuss topics that we view as being of interest (the "hot" topics) in the commercial loan workout arena.  We then hash out a list of what we'll write on for the next month.

Identifying "hot" workout topics can be a dangerous thing for lawyers.   Yes, we -

• are active in industry organizations (such as the several committees with the Mortgage Bankers Association and working on creating workout data standards through MSMO 
• give workout seminars to clients and at legal industry meetings, and
• now handle an increasing number of workouts and bankruptcies every day . . .

BUT as "outside" counsel,  we're keenly aware that we are not privy to all of the discussions (both formal and informal) that you, the front-line participant, are having on this growing topic.  (There you have it: that long sentence proves I'm a lawyer - which is the reason why we need your help.)

While we believe that we're generally in touch with the market, we understand that we still remain "outside" legal counsel.  So, we're looking to you for the "inside" scope on topics of interest.

- Do you have any topics that you'd like us to address in Tough Times?

Please post a comment to give us some guidance.

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Guest Writer – Nelson Block, Winstead PC
2nd in a series of 3 postings

When market conditions worsen, the business’s deficiencies can outstrip the accumulation of assets that supports new loans.  Assume that on January 1, the borrower’s accounts receivable are $100,000, and the lender, using an advance ratio of 75%, lends $75,000.  The borrower uses the $75,000 to pay employees, taxes, rent, utilities and purchase inventory.  But adverse market conditions cause business to fall off, and on April 1 accounts receivable are only $80,000.  During the intervening 90 days, unless the company’s management was farsighted (and assuming it already adjusted for annual seasonal changes in business), it purchased the same amount of inventory and kept the same number of employees.  Moreover, the borrower’s non-payroll fixed costs – taxes, rent and utilities – have stayed the same.  So, on April 1, the borrowing calculation is 75% of $80,000, or $60,000, but the borrower still requires $75,000 to operate.

The typical pressures of business loom larger in a downturn.  The borrower, which needed daily working capital when it obtained the loan, is now strapped and using cash quickly. Management was already under stress from the many issues facing it when it took out the loan, and now confronts all those problems plus two more – a troubled business and a lender that wants to get paid sooner than expected. Time, which was short during any business day, is even more precious now, as the company’s management spends more time analyzing its business problems, dealing with employees (one of the most difficult and worrisome activities in a workout), putting off creditors, and meeting with the lender.  Certain strategies work well in such situations. See the next posting for a list of strategies.
 

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Guest Writer – Nelson Block, Winstead PC
1st in a series of 3 postings

While the experts argue about whether we are in a recession, or whether the Houston area is immune to it, those of us in business need to prepare for the challenges of an economic downturn and what to do about it. An important aspect of that analysis is what to do about your loan. Sometimes during the life of a loan, the borrower’s performance may be impaired or, just as importantly, may be viewed by the lender as impaired. Warning signs of a distressed loan include weakened cash flow, decreasing accounts receivable, rising costs, and build-up of inventory. In a revolving credit loan, where the amount of the loan varies as a function of the borrower’s collateral, poor economic performance translates into a loan covenant default because the borrower is not in compliance with its borrowing base.

How can a default arise in a revolving line of credit, where the amount of money advanced only increases when the borrower’s assets increase? The default often occurs because the loan anticipates cash flow. The borrower only sought a loan because its accounts receivable do not pay quickly enough to supply a reliable source of regular working capital. Its monthly cash needs were not being met by the payment of its accounts receivable.
 

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With the rise in real estate defaults, and constant news of borrowers facing foreclosures taking out their anger and frustration on their houses and other property collateralizing the lenders' loans, an increasing need exists for lenders to take pre-emptive steps to protect their collateral pending foreclosure or entry of a final judgment. While the laws in the various jurisdictions differ somewhat, a quick basic refresher on available pre-judgment remedies is as follows:

Attachment
A writ of attachment is available in cases where a borrower is about to hide or dispose of all or part of the property, or to convert the property into money for the purposes of placing it beyond the reach of its creditors. An officer will seize the personal property through a writ of attachment and retain possession until ordered by the court to release the property. With respect to real property, a writ of attachment is akin to a lien against the property.

Sequestration
A writ of sequestration is available to a lender in a suit if there is an immediate danger that the borrower will use its possession to injure, waste or ill-treat the property, or to convert the revenue of the property to its own use. As in the case of an attachment, the officer executing the writ of sequestration will take possession of and care for and manage the property until foreclosure or order of disposition by the court. The officer will be liable for injuries to the sequestered property resulting from his neglect or mismanagement.

When dealing with income-producing property, such as apartment communities or development projects, attachment and sequestration may not fully protect lenders. In such cases, a temporary receivership or injunction may be the tools a lender needs to avoid significant costs and expenses later.

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Day Three Report from Keith Mullen and Lou Strawn in Europe

On this third day, Keith Mullen, Brenda Brown and I attended the opening session of a European-based real estate conference.

The opening meeting was a Q&A session with a panel composed of the head of a major German bank, the head of the Morgan Stanley European Real Estate Fund and the former chairman of the Euro Hype Fund. The room was standing room only, and the subject was (you guessed it) "Subprime, Credit Crunch Nonperforming Loans . . . The Year After (Strategies for dealing with the crisis)."

What is clear is that the Europeans are as concerned about their banking industry as their U.S. counterparts. The panel stated that this crisis has migrated from a "credit crisis" to a fundamental "trust crisis," and that trust will not be restored by more or stronger regulation, or enforcement, but by the investment behavior of the banking institutions themselves. Upon reflection, it is an interesting and alarming thought.

On a brighter note, the panel emphatically stated that there was no real danger of EU depositors losing funds as of last Friday (October 3rd), when it became clear that members in the EU would commit (and had committed) bailout capital similar to the U.S. Germany committed 520 billion euros; Ireland committed 400 billion euros; and Holland a similar amount. (This amount is in excess of the U.S. bailout.) However, these members did not take the buy "toxic debt instruments" like the U.S., but instead, they elected to directly back bank deposits.

The panel also discussed the volatility suffered by EU banks due to the swings in "mark to market" rule interpretations -- it was almost as if the panel was describing the U.S. banks. And, of course, the panel at length focused on the need for transparency, and the "German mortgage bond," which we know as the"covered bond."

No one clapped at the end of the session.  Everyone simply left the room.

If you have any observations or comments, or any questions that you'd like us to ask during our EU trip, please "post" a comment.
 

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Below is a graph showing the refinancing challenge facing the securities industry for the years 2008 through 2012. Note that while $8 billion of unamortized 5-year CMBS loans will reach maturity by the end of 2009, that number grows to nearly $20 billion in 2010 when you add loans with partial interest-only payments. That amount may well exceed the entire securitization originations in 2008. This makes for a pretty gloomy prediction regarding maturity defaults in 2010 and beyond. It also, of course, does not include maturing loans that will need to be refinanced outside of the securitization world.

What does this say about our future? Unless there is a thaw in the credit markets, we're all going to become very good at workouts.
 

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