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Bar Association of San Francisco Member Benefits: PublicationsThe Changed Legal Services Landscape

Changing the Light at the End of the Tunnel: Distressed Financing Roundtable

 

By Reno F.R. Fernandez III, Macdonald | Fernandez

How many professionals does it take to educate the bar? At the Commercial and Bankruptcy Section’s Distressed Financing Roundtable held on March 12, 2013, John Seeley, Jim Palmer, Jim Burke and Ben Young illuminated current lending, insolvency and bankruptcy issues.

John Seeley, business finance broker with Acrius Capital, revealed effective strategies for obtaining new loans in a distressed situation. Building confidence in the turnaround plan is key, including identifying qualified interim turnaround managers, showing purchase orders in the pipeline, and drawing compelling comparisons to historical performance. Another critical consideration for lenders is the quality of collateral (e.g., accounts receivable: who are the customers and how fast does it turn), and Seeley outlined strategies such as sales free and clear of liens in bankruptcy.

Jim Palmer, estate manager with Credit Management Association, covered the mechanics of out-of-court workouts. Palmer told the story of how a turnaround professional can stabilize a company’s cash flow, develop a workout plan and negotiate with creditors. Palmer also detailed strategies for handling dissenting creditors. Alternatively, an Assignment for the Benefit of Creditors may dispose of distressed assets faster and cheaper than a bankruptcy liquidation.

Jim Burke, investing partner at Burke Capital, analyzed a lender’s options when its borrower is in distress. For example, lenders who become unsecured may write off the debt, negotiate new terms under an unsecured promissory note or obtain a junior lien position, among other things. A lender with “hangover debt” may allow the new senior lender to act as servicer, collecting the old lender’s claim.

Burke believes most of the turbulence is behind us and a lender’s best options will become clearer.
Ben Young, partner with Jeffer Mangels Butler & Mitchell, moderated the debate over why the financial crisis has not resulted in as many bankruptcy filings as expected. Several explanations were offered, including that TARP may have eased the blow, lenders distracted by real estate issues are only now addressing commercial loans, and some banks are making takeout loans to their own borrowers through their asset-based divisions. Young added his expertise on financing and cash management issues in bankruptcy.


 

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Reno Fernandez, a partner with Macdonald | Fernandez, is the chair of BASF’s Commercial Law & Bankruptcy Section. His practice focuses on commercial bankruptcy, insolvency and turnaround litigation.

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