Sign New Jersey Banking Forbearance Agreement Easy

Industry sign banking new jersey forbearance agreement easy

welcome everybody my name is drew para Beck and as Mallory said I am a partner in the Cleveland office of worries I am the chair of the firm's bankruptcy restructuring and workout practice and in that role it really is my pleasure to welcome all of you and thank you for taking time to join us today with me are my colleague Jeff B Zack I work with Jeff in the Cleveland office Jeff practices bankruptcy restructuring law and also finance and my colleagues Alaia white Alaia heads up our practice in those areas in the Akron office so for the next 45 minutes or so we're going to take you on a whirlwind tour a forbearance agreements and loan modifications what are the considerations prior to drafting when are such agreements justified when do you forbear when do you amend when should you consider something in between we'll talk a little bit about important provisions we will try to give you a guide to obtaining maximum protections and offer some practical advice and hopefully time permitting we will have at least 5 to 10 minutes at the end for questions and answers we're gonna start off with a brief discussion on pre documentation diligence because this will influence or govern the next steps that you take as a lender and the type of agreement that you might want to use so the first step in your diligence process and you know it might seem almost that it goes without saying but it is critically important is doing a corporate organizational and legal authority reviews so what does this entail most importantly and probably familiar to nearly all of you would be obtaining certificates of Good Standing updated corporate organizational documents for your table Gore's figuring out you know confirming that ownership as you know it actually is the current ownership of your obligor and getting an updated incumbency and slate of officers of the company now a lot of this like I said it goes without saying we want to really slide one important issue that we've seen coming up lately that can have very significant consequences regardless of how your credit progresses through a a scenario that's dealing with issues relating to companies no longer being in good standing now generally speaking in a beam revokes and being in good standing will prevent the company from doing business in a certain jurisdiction or have other consequences regarding their access the courts one thing we've seen the stepped-up lately has been state taxing authorities exercising their right to treat non-payment of what in many cases are largely immaterial and almost negligible fees and reporting requirements as a basis to revoke an obligor corporate charter and in a number of states the consequence of that isn't just simply that the company isn't in good standing but any action it takes while it's not a good standing and while that charters revoked is considered known void it says if it didn't happen so considering scenarios where you've got release language reaffirmation of obligations acknowledgments of default if you don't go through the process up front to make sure that your company is in good standing and check any of those issues you could wind up with a scenario where your obligor assigns a document that unless and until those issues are fixed not binding on that company real and personal property searches are something that I do in almost every circumstance and I think it would be the rare circumstance where those services were not undertaken on the personal property side I tend to recommend full searches of UCC filings litigation other lien filings in bankruptcy I want to make sure that there are no glitches and are collateral and perfection but I also want to know who else is out there who else we may have to deal with as part of a workout scenario got to pay close attention to collateral descriptions to make sure you have what you think you do and make sure that the debtor and secured party names are accurately reflected on your financing statements got to be precise believe it or not it does occur that sometimes financing statements don't get continued so we always check that and we also check for unusual collateral and unusual profession which we may talk a little bit about later in the presentation but you cannot always rely on a financing to be perfected in certain kinds of situations with certain kinds of collateral on the real estate side it's the same thing I want to make sure that the insurance is in place that the policies are up to date and that everything is covered in the appropriate amounts as you proceed forward with your assessment of the workout or for the amendment the next diligence item the supply chain and collateral access Arrangements we think it's important to understand the borrower's business identify potential critical suppliers understand the borrower's of ulnar vulnerabilities and trouble areas and understand the borrower's customers because that will help formulate then a more comprehensive restructuring agreement that addresses all the areas of concern with respect to collateral access the landlord waivers and Bailey waivers should be reviewed analyzed to ensure that they're complete and give the lenders the rights that the lenders need especially if liquidation on premises is contemplated or perhaps an option the landlord waiver should be reviewed to make sure that there's a right to sell on the premises a one is item I want to mention here from a collateral perspective we're going to delve into this a little bit more later in the program but material contracts those could be collateral of a lender if there's a collateral assignment of those contracts and those collateral assignments will give lenders the right to cure defaults or if there's an event of default or the credit agreement lenders may have rights to exercise rights under those material contracts so those have to be looked at as well the next item from a diligence perspective is financial performance loan documents and collateral access reviews I'm going to lead off with loan documents drew mentioned a little bit about UCC searches but we think it's important to make sure that the cross-collateralization provisions to the extent there are any effectiveness of those if there's gear and pores on the Creta to make sure the scope of those guarantees one area that we often see come up and in the course of us reviewing lowe documents is that notes are often amended restated consolidated flipped on their head and then it's unclear then when you look at the underlying security instrument whether it's a security agreement or a mortgage whether or not that security instrument actually secures the note so that's one item that has to be looked at thoroughly i don't want to go into all that kind of loan document due diligence but there's financial covenants there's reporting requirements the big takeaway that we want to kind of stuff for this we can't fix documentation problems if we're not aware of the documentation problems so sometimes the loan review below document review will take time it will there will be a back-and-forth because lenders counsel will need to you know ask and maybe repeatedly ask for documentation that we think that exists that wasn't initially forwarded to us but a comprehensive loan document review does make it much more easy to formulate a comprehensive restructuring agreement on the financial performance side a lot of times there's delinquent or deficient financial reporting so this is the opportunity to collect that update that and also calculate any kind of financial covenants that haven't been calculated as a result of missing information with respect to collateral access if there's a cooperative borrower lenders should consider exercising field examinations audit and inspection rights one kind of pointer hairs do not rely on book value of inventory and on-site inventory analysis usually yields a very different result than the book value of inventory on a borrower's books so one you've completed your document review and you've undertaken your additional due diligence you should have a good feel for your position is it strong is it weak now what we think there are a number of overarching considerations that will play into what kind of an agreement you want to enter into with your customer what's the number one is does your borrower's business have a future is there a business to save a business to reorganize can this credit be returned to the line or is this an exit refi scenario considerations that go into that I think are both tangible and intangible I've done this for a number of years and I have found that if you're working with good honest people on the other side of the table typically with good counsel and there's been transparency that certainly eases the work out scenario and negotiations what what are the causes of the customers business problems is it just an odd blip is that the economy is a bad luck or are you dealing with scoundrels and I think when you are the general proposition is you don't want to stay in bed with with people like that you need to take a look at where you're at in terms of administering the credit have you already started collection activity and and has the relationship the credit itself or the personal relationships deteriorated to a point where it's going to be very difficult to resurrect so what is the strategy sometimes I see knee-jerk reactions well let's just do a forbearance and we'll figure it out or get a receiver that seems to be in vogue and has been for a while but I would submit to you that it's really better to have a sound strategy where do we want to end up with this credit and how do we get there I think it's ok in the short term to have a forbearance arrangement while you figure that out but I think it certainly is much better going into it to know where you want to be and where you want to end up documentation and diligence the strategy in action I think that really goes to the question of are my documents in order and if they're not that's going to play into what I do to get them in order do I have all the collateral that's available do I have guarantees from everybody I need to have guarantees from and I would submit that sometimes you get guarantees for psychological reasons your guarantor may not have a lot of financial wherewithal but guarantors so company officials tend to pay more attention when they're also on the hook personally that's been my experience and then as a bankruptcy and restructuring lawyer I guess someone who kind of lives on the dark side I think one of the most important things that we do in representing our lender clients is to make sure that you stay out of trouble avoid lender liability and over the years I've compiled a list of just a few Maxim's that I axioms rather that I think apply to this one is a presumption that all of our lender clients are reasonable I hope that's the case it tends to be the case and we try to make sure that that remains the case another axiom is that control is just such an ugly word but lenders have to be careful especially in this scenario which is a distressed situation where tempers can run high you can't run your customers business you can't do that and there's not enough time to really talk about all the examples of lender liability that could be a half a day seminar but you have to be sensitive to how deeply involved you get in making decisions for your customer another axiom is that pigs get fed and hogs get slaughtered so you do want to ask for enough to protect your position we'll get more into that but you've got to be reasonable youyou can't be overreaching and again as I said initially I think one of the most important things that your counsel can do in a distressed workout situation is to make sure that you don't get sued so the doc no we're going to discuss as a forbearance agreement and the key feature of a forbearance agreement is that the default continues and the loan will typically remain matured or accelerated during the forbearance term in forbearance the borrower acknowledges that these default and acknowledges that the obligations are doing owing to the lender now some borrowers kind of pushed back if they're offered or a forbearance permit is proposed by the lender that there's a negative stigma associated with forbearance transaction my response to that is you know as a borrower if there's a default and typically the you know the loan is due and owing it's matured or accelerated you want that forbearance feature otherwise the lender would be able to exercise its rights at any time so you know when there is a default the forbearance agreement is the proper continuing default that is the proper document for that purpose out of agreements we'll be discussing a forbearance agreement is the strongest medicine by virtue of the fact that default continues in place and that has you know various consequences you know the lender depending on the terms of the forbearance agreement could invoke the default rate while it offers accommodations to a borrower the forbearance agreement likewise offers protections for the lender and it's a highly negotiated instrument I always like to say there's no such a thing as a form for variance agreement you have to tailor a forbearance agreement to the specific credit the specific risks that are associated with that product it's important to remember that a forbearance agreement is not an end game but it it also offers typically a road map to the end game while obviously you know but prior honor prior to the expiration of the forbearance term you know forbearance of agreements contemplate repayment of the debt that typically you know doesn't usually happen usually there's extensions usually there's orchestrated sales of collateral usually you know they can take various courses during their pendency but one practice pointer under the Piggy best and what I said before that they're highly negotiated instruments we often find it more efficient to negotiate a term sheet with the borrower priors are starting to draft to the forbearance agreement and in that you know when a term sheet is a comprehensive term sheet is negotiated and consented to and makes them forfeit the drafting of the forbearance agreement much more efficient and it really if it's a good term sheet there shouldn't be any surprises either for the borrower or for the lender there are times where you know forbearance agreements are entered into as a precursor to an exit strategy by the bank but there's also times where forbearance agreement is entered into because to allow the lender additional time to assess the viability of the credit and formulate remedial steps toward rehabilitation of the credit so it could also be used as kind of a buy time agreement or allowing you know if there's certain specific promises that are made by the borrower to allow a limited amount of time for the borrower to see that could fulfill those promises whether it's you know a sale of a division of the company or whether it's you know getting new tenants in a medical office building there's various reasons why a forbearance agreement might be desirable a few other reasons are that there's an operating business to save another agreement or reason is that an orderly liquidation or a refinancing will maximize recovery by the lender a third reason kind of piggybacking off what drew said before that you know there may be potential lender liability concerns and the release given by the borrower and obligor s-- in favor of the lender has a lot of value to the lender it's kind of like hitting the reset button and so there might be another reason for entering into forbearance agreement there's also situations where forbearance agreement would not be a good option when their credit is dead on arrival there's no business operations to continue if there's fraud whether it's suspected fraud or actual fraud those aren't that they usually is not a good forbearance scenario and also you know if there's an uncooperative borrower and by Uncle operative you know some borrowers who don't want to have any negotiations with a bank but there's also borrowers that will use stall tactics where you know it takes an extremely long amount of time to this negotiator term sheet if that's the case maybe another opti n should be considered one kind of caution with respect to forbearance agreements is that the statute of limitations for collection of the note is six years from the earlier of earlier of maturity or acceleration so if it's a very long forbearance period that's something that should be considered by the lender so if we think of this range of documentation as a spectrum you know on one end we've got the forbearance agreement as your strongest type of medicine and dealing with the distressed credit and your amendment and waive or serving as you know you're carrying on with normal business and letting the credit recede as a 1/1 there is obviously and of course can be a large gray area in between those two types of documents where perhaps the more nuanced or sensitive approach is necessary to accommodate specific concerns with respect to a specific credit we've termed these hybrid documents you may have seen them in the form of something titled a loan modification agreement and agreement regarding a loan documents there are really as many different formulations of that concept as your imagination permiss but what we want to stress is that just because there is a gray area and because there is flexibility in working between you know a tough forbearance agreement and a business-as-usual amendment having that flexibility should not be a substitute for the good planning and the long term strategy that should go into consideration before you even get to the documentation stage now having that gray area does allow you the ability to mix and match some of the features of a forbearance agreement with a traditional loan amendment the economy particular concerns with respect to a particular credit for example if you've got a borrower that has had some compliance issues perhaps they're behind on reporting but the underlying is business sound the stigma Eliab mentioned that might go with being in a forbearance agreement or being under forbearance might be too toxic for a borrower to swallow but even something as simple as retitling the document as something other than a forbearance agreement perhaps is diluting some of the stronger forbearance agreement terms without going so far as to making it a traditional credit agreement amendment that's the kind of flexibility you have to provide the bank the protection it needs but to make getting to the end goal of your strategy more palatable for your customer and then we jump ahead to amendments and as Jeff said you're going to more likely deal with amendments on better or salvageable credits an amendment really means precisely that you're working normally from your existing loan documents and you're amending you're modifying them amendments are generally appropriate for isolated technical defaults the main purpose is to modify the loan terms because the bar would be in default under the prior loan terms absent the modification an amendment almost always involves a waiver of existing defaults if the loan was accelerated it would get decelerated but the key question is whether or not to preserve the default if you're waiving the default you're inclined to do an amendment if you're preserving the default or want to preserve the default you're heading more toward a forbearance or something in between what amendments commonly do they commonly extend the maturity on term loans or the expiration dates on lines of credit and in a nutshell they generally continue the relation to financing relationship are the amended terms there are some advantages to amendment agreements we've been discussing this internally Jeff and Ally and I have from a packed practical business perspective you don't have the stigma or the taint of a forbearance especially on better credits if you do an amendment corollary to that would be that amendments are better for continuing lending relationships they perhaps at least arguably with less and lender liability concerns because you're resolving default or you're gonna resolve it and put it behind you we've had some discussion on whether an amendment might provide some preference defenses that perhaps the forbearance wouldn't and the context would be that as part of the amendment you may be getting additional collateral or payments that may smell a little bit more like an ordinary course defense to a preference than getting payments under a forbearance agreement that really are independent of your existing loan documents I think an amendment generally would make things easier to refinance and my experience has been that amendments typically are longer terms and forbearance agreements um if there's a disadvantage to an amendment it would be that you're gonna be a little more restricted in terms of declaring defaults because you've cured them you've waived them under the amendment if you're in a forbearance you still have the right to go ahead and execute on the default under the terms of the forbearance arrangement and I would also concede and I think we've talked a little bit about this but a lot of the terms in both types of agreements are the same it is done unusual to get a release in both types of agreements but there are key considerations key differences and that really really boils down to are you waving to fall so are you retaining them okay we're going to jump into our favorites terms and provisions of these various agreements the focus is probably a little bit more on forbearance agreements and I would imagine that most of the people listening in and have experienced these types of provisions are familiar with them but we've identified these as some that are standard and very important you want existing defaults to be reaffirmed by your customer if there's any disagreement on that up front you want to work it out you know you want to you want to go ahead and resolve it upfront and not have that it's a lingering lingering issue and you try to capture the entire universe of existing defaults agreement to waive or forbear we've talked about that in the session which preceded this so when you waive you're gonna wait when you're amending and that's gonna probably be tied to a better credit but the question how long do you forbear to me a long forbearance often starts to smell a little bit more like an amendment and I think you can get into issues of course of dealing if you amend over and over and over again now my record for amending a forbearance agreement is 23 amendments and that's not something I'm particularly proud of but it carried a forbearance arrangement for a long long time thankfully it ultimately had a successful conclusion but it was one short forbearance period after another I think if you're going to agree to a longer term forbearance period you're gonna want to tie in benchmarks you're gonna have performance benchmarks and you're making you're gonna make it a little bit painful perhaps monetarily if you don't meet those meet those benchmarks and you want to get out of the existing forbearance term you always will want to have an acknowledgement of the existing obligations certainly the reaffirmation of liens if there's an issue there you want them to be fixed but you want at any point in time that the time that the forbearance agreement is executed you want an understanding as to what is owed if there are issues about whether a default interest was appropriate or not you want to get those issues resolved again upfront and I've had circumstances as well where counsel for the customer who said well you know what is the bank really carrying this obligation on its books well as far as I'm concerned the obligor the customer is entitled to the customer balance but but not a bank balance that may reflect write-offs and other internal considerations what the customer owes is what the customer owes release in waiver provisions I think that in my entire career maybe once but perhaps never have I agreed to a forbearance arrangement that didn't have a release and we kicked around internally is there ever a circumstance where you might not insist upon a release in order to get a deal done no fuss on that I think it would really need to be a pretty unique circumstance where you've got a very smooth sailing queen lending relationship going in and maybe it's just a football type of default that winds them up and you know the air clothes work out scenario and there are very little if any concerns that there's possible lender liability looming in the wings I mean for me that releases is critical and further to that point we've seen a non distressed credit and perfectly healthy credit that not necessarily the full-blown nuclear release you might see in a forbearance agreement but a more watered down or or less stringent release being included in standard amendment documentation now such that you know the release isn't just the province of the distressed credit document anymore it's really becoming a part of any modification to an existing credit yeah with that kind of use of your release isn't just about every credit document or amendment I mean well we're a lot of times those are depending on website we are whether we're on the lender side or the borrower side is sometimes those are negotiated to be not releases but of you know an acknowledgement that we're not aware of any claims against the lender but with respect to Drew's inquiry whether or not you know we would enter into a restructuring agreement if there's not a release I always would like to understand why the borrower is not giving a release try to walk you know walk through that with the borrower's console I think it's you know it's typically odd that in especially in a forbearance agreement where a borrower's counsel would strike out the release provision because that's kind of one of the main traditional key terms of a forbearance agreement but I had a little wary of that you know saying by no means would we enter into that agreement it's very it's a fast it really is and I guess I might not understand I consider doing something less than a full release if we had a really severe collateral deficiency perfection issue coupled with a decent blending relationship with our customer maybe maybe to get that fixed I would think about no release and then I'd count to 90 as quickly as I could but I think the overarching rule really is that you want to get in a forbearance context the full-blown nuclear release like we just described that you want it to be as broad as it can be related to the credit or lending relationship one thing I would point out though is you don't want to inadvertently release claims and some examples I've seen over the years are there could be separate credit card obligations that your customer has it may continue perhaps treasury management services would continue don't you don't want release that inadvertently sometimes the customers principals will have a private client relationship and obligations to the bank you want to make sure those are preserved if that's the goal and sometimes as obligations lending relationships grow they get more complicated as you all know you may have more obligor as multiple obligor you may have affiliates of the bank that have loans as well such as equipment financing and you want to make sure that you don't release things that ought to be preserved so now that we've discussed some of the core provisions they're going to be common to nearly any of these types of arrangements we're going to delve a little more deeply into some of the specific tools that you might be able to use to help assess your credit and move towards your ultimate strategy of how to exit a particular forbearance circumstance and really the things ally and I are going to discuss here on the next two slides are going to be most appropriate in a forbearance agreement or something trending towards the stronger and of a hybrid type agreement and you know the three items I'm going to list on this slide really can be distilled down to one key overarching principle and that is that information is king and gathering that information and making sure you have all the information you need make an informed decision and formulate your strategy for the credit is critically important so that might come as far as the first bullet point it may be that a financial covenant default and got you into the default situation you're working in those circumstances it might not necessarily be possible that you can just loosen the existing financial covenant and the borrower will accept that and move on your way this is the time where it's important to consult with your counsel maybe consider alternative financial metrics for measuring your borrowers performance and making sure that those benchmarks are realistic and attainable for your borrower in that really is a balancing act between the bank's interest and wanting to see the company perform well and hit certain benchmarks with the customers understanding of their business and what they think is realistic over the timeframe of forbearance period and then with respect to the second and third bullet points you know one of the common areas we will see this would be in an asset based lending relationship where you're dealing with getting more frequent borrowing base reporting you're remedying existing reporting deficiencies be a borrowing base or otherwise to gather further information with respect to liquidity you're getting a 13-week cash flow you're getting weekly reconciliation to that cash flow and you're working with the customer on their cash budgeting and really trying to identify if there's a liquidity problem with the business where is the money going and what can we do what measures can we take and how can we work with our borrower to shore up their liquidity position we'll discuss a little bit more there are things you can do beyond that to bolt through the company's liquidity position but the first thing you need to know before you can get to that stuff is whether there is a liquidity problem and is it something the company can internally fix or a third party is going to need to step in provide support to make sure things stay on track look I've just discussed monitoring borrowers performance obtaining information that's required to improve a financial performance cash is collateral to Bank and Bank needs to understand where the cash is going and understand the liquidity position of the borrower shouldn't be used to pay subordinate subordinate that you need to be careful regarding the borrower district making cash distributions to equity and one thing that especially in the context of a forbearance agreement is that should be considered is a budget and one thing I like about a budget it's basically the borrower proposes the budget and it has to live under the terms within the budget you know with a certain percentage deviation as far as liquidity support and this is often you know one of the critical components that needs to be addressed especially when loans have either matured or been accelerated and there's no additional liquidity in the form of death that borrower has access to is a credit line or you know allowing access to a revolver a possibility is cash from guarantor a possibility is the bar were able to liquidate some of its collateral and we'll the lender in that situation allow the borrower to retain a certain percentage of the sale proceeds and all these items that we're discussing and improving financial performance they're very fact-specific to the borrower and a lot of times you know negotiations are discussions between the lender and the borrower are not sufficient to actually improve financial performance a lot of times third party consultants or professionals need to be retained in order to help borrower in that regard and so we listed kind of three different types of you know there's turnaround consultants chief restructuring officers there's various other third party professionals but I think the key takeaway with respect to third party professionals is the borrower should be the one that's retaining these professionals the forbearance agreement should make it very clear that it's the borrower's decision to retain these professionals and that the borrower is responsible for paying for these professionals with that said the lender should be able to negotiate some kind of rep rting that it you know it gets access to based on the work of these professionals and should also be given the opportunity to have discussions with these professionals and reasonable times either with or without the presence of the borrower but these are these kind of go into what Bruce said before with respect to lender liability concern one rule if the professional hasn't been retained at the time the restructuring agreement is entered into perhaps list three four or five options and that you know the borrower will decide among those options which professional to retain which over getting down into what some cases can be the nitty-gritty but in terms of a you know effort in versus results out some of these can be the absolutely most critical components of crafting your for parents or amendment documents and the first two really go hand-in-hand and that is getting a great feel for what your collateral package is and seeing where are there instances where we can either remedying existing issues or perhaps since you've got the opportunity identify additional Garan towards or other obligor and additional collateral sources and as common senses that may seem to be it's not infrequently that we see that that can sometimes be skipped across or that can be hurried over in the rush to get to a document in forbearance agreement an important part of the loan review and particularly if you've got a customer with multiple different relationships across different arms of your institution perhaps they've got real estate loans they've got separate asset based lending facility they've got equipment finance obligation you know seeing where collateral exists along that broad spectrum of obligations and where potential additional obligor is might exist and looping those in to secure what might be less amply secured obligations is a really important part of this process and having the consideration being provided of the forbearance or the waiver of default is a great opportunity to capture that additional value in that additional security for the bank while it's got the chance and as far as remedying the lien perfection issues go you know this is where having your counsel closely reviewed documents to identify and remedy those issues is critically important and I think just like any other issue is lien perfection there's really nothing but horror stories out there in one particular horror story between you two is a case out of the Seventh Circuit called nr8 Duckworth this was an appellate level decision in which there was a promissory note in which the relevant security agreement had identified the obligations being secured this relating specifically to that promissory note and the promissory note was dated December 13 2008 fortunately the security agreement said that the promissory note being secured was dated December 15th 2008 whether through a rush are just an advertent that error was missed all the way through the Senate II making it into a bankruptcy proceeding at which point the issue was identified and the financial institution attempted to remedy the issue by asking the court for the equitable remedy of reformation which generally speaking in many contexts allows the court to look beyond the technical issue and figure out what the parties really intended and treat the problem as if as if it had never happened the key takeaway in problem here is that once that obligor went into bankruptcy the courts that didn't no longer had through privity of contract with that obligor and because the bankruptcy trustee was treated as a separate entity there was no Reformation available in the relationship and those documents were treated as if they were frozen on the day the bankruptcy is filed as a result the trustee was able to avoid the lien and the obligations were rendered completely unperfect 'add we're talking about two digits being often a single security agreement if something an attorney can quickly identify and fix that's given the opportunity and one of those things we're rushing through that stuff and saying we can handle this later we can do a further loan review at a later time you know there might not be a later time and you might get to a point where it's too late to fix a problem like that that is eminently fixable under the the bolster and contractual and statutory rights and remedies provision I want to focus on two things because they're kind of my favorites receiverships and then cognitive judgments I'm a pretty big fan of receivers i I think that receivers can bring two distinct advantages really many more than that but two distinct advantages to a workout scenario so you want to have the ability to have an a-c receiver appointed in your forbearance document receivers can sell property free and clear of liens under Ohio's not so new statute anymore but it was a certain an approved statute and I think that because receivers operate under court orders that can provide insulation to lenders you've got the protection of a court order when a receiver is undertaking actions that really in your benefit there are a couple of caveats however a receiver is an officer of the court it's not working for you as the lender and also remember that you can't always get what you want even though the statute is designed to give some deference to the lenders choice of receiver and doesn't really play out that way and certainly in Cuyahoga County it can be difficult depending on your judge and getting the receiver you want no matter how no matter how I'm expert expertise how much background he has in the matter at hand the judges here tend to appoint the people they want to a point but again I think it certainly is the the fact that it provides insulation from lender liability alone I think it's just a really valuable part of the receivership tool the other thing I want to talk about a little bit of cognitive judgments you probably know this but not every state has the ability to take a cognate or confession-of-judgment Ohio does I believe Pennsylvania does I want to say New Jersey there are some other states to do in some states it's disfavored in some states it's actually criminal to try to take a confession of judgment you certainly would not want to try to transfer a cognitive judgement to California and all of that subject to the death penalty but it's a pretty bad thing in California but I think it really is it's a very valuable remedy because if your papers are drafted correctly so that your confession-of-judgment language and the signature is where it's supposed to be you often can get a judgement very quickly you know almost immediately some judges in Ohio don't like it and they are definitely gonna take a look at the documents to make sure that they are drafted and crafted correctly but being able to get that judgment and getting that judgment lien on unencumbered property is really really significant the less that I'm on this flight is for parents and amendment piece I think the takeaway there is you know keep the fees reasonable especially in the forbearance concepts that that is you know typically already doing owing and use the fee structure to instead of us the borrower to accomplish the desired outcome so you know forbearance feet can be fully aren't as of effect at the end of the forbearance agreement but if for example if the borrower pays off obligations and full honor before a certain time it could you know a portion of it perhaps could be waived a better option also might be using that default rate of interest and waiving that instead of using a forbearance restructure and the reason I say that is because typically that the business original loan documentation provide for default rate of interest whereas forbearance and amendment fees are fees that are kind of on top of that are solely part of the forbearance or restructuring transaction and they can be disfavored in certain jurisdictions and I think before we jump ahead to the next slide I would just add a couple things always get a waiver of jury trial provision in your document try to get jurisdiction in your home court if you think you have lender liability concerns see if you have the ability to get into federal court I think more often than not you're going to get a fair shake in a state court especially in the northern part of Ohio I mean then over the years I've come up with a list of words I don't like to use and forbearance agreements you almost have to but I try to avoid the word material reasonable best efforts in good faith and any kind of knowledge qualifier and not a real big fan of cheer periods but again it's going to depend on the relationship the negotiations you're going to have to have some give-and-take you know drew before we jump off that on the jurisdiction issue and venue issues we've had this come up once or twice and somewhat more than a few months since we've seen it but issues with having multiple sets of loan documents or documents that may have started as an internally drafted credit with things prepared lease or pro documents and then later we're handed over to outside counsel and maybe brought back in is making sure that all of your documents especially if you think that potential for enforcement is creeping up make sure that you've got a consistent place and governing law in which those documents are going to be governed by it and that can not only apply just within a specific set of documents but across a broader relationship with the customer if you've got equipment loans if you've got an asset-based loan you've got C&I loans you've got real estate loans it's possible that all of those documents may be governed by different sets of laws and have different and sometimes exclusive consents to being heard by a judge or a court in a particular city or county or state and unfortunately if you get to the scenario where it's time to enforce and you have documents that need to really be litigated in conjunction with one another but that provisions that say one's going to be litigated in New York and the other is going to be litigated in California now you've created a very messy and a potentially very expensive problem to try and remedy when that's something and we know it appears in the boilerplate of the documents and a lot of time it's almost an afterthought when negotiating the core business terms but it can have really dramatic and drastic consequences when it comes time to see a courtroom with the per tick credit if those things aren't wind up and squared away one year for Jam yeah and that's a good point I would also add that Laser Pro documents often screw up the cog Nova provision especially if they get amended you may have a signature on one page and your warning on another page and it's just it's just not gonna work so if you're working laser Pro documents and you want to preserve that confession-of-judgment cog no but right be careful it's done right I know we're gonna jump on and kind of just take back and forth some of these hot-button issues we've seen in work out matters and if you have any questions you know please feel free to go ahead and send those in and we will try and address those as we move along for each of these topics so with respect to a LIBOR replacement and AML Patriot Act issues you know this is something you've probably been monitoring internally and you may very well have significant internal procedures in place to make sure that whether they be internally prepared documents or your outside counsel that they are in compliance with current regulations and that everything is being brought up to standard if not you know a workout scenario is an important time to get those provisions in place as we know it appears that LIBOR is going to go the way of the dodo bird and the secure and overnight financing rate may be its successor regardless of what its successor is if you have a loan with a LIBOR based interest rate now is your time to get replacement provisions that can avoid a potential issue down the line where you are sitting at the table with your borrower or worse you have no agreement whatsoever as to what the replacement is going to be and it really becomes the Wild West as to how you're alone is going to bear interest on an ongoing basis additionally with respect to things like beneficial ownership regulations affect Patriot Act sanctions all of these issues and compliance matters can be picked up in your documents and are very simple legal changes and something that if they're not already covered by any applicable outside counsel guidelines or internal procedures you have you know it's the perfect time to address those and bring them into compliance and then if she wanted to discuss this managing soif and hedging exposure me it's abhorrent to review that is the Master Agreement and to understand what the unwind or early termination penalties are especially during the most recent real estate crisis a lot of times in addition to being underwater on a collateral borrowers had a very large amount of liability under their swap agreements early prepayment liability with respective prepayment fees and in the bankruptcy context these are called make-whole premiums the basic purpose of a make-whole premium is to compensate the lender but that is paid prior to the maturity date for the loss of the bargain for results or revenues that the lender would have otherwise received and bankruptcy courts are kind of split regarding enforceability of these make-whole premiums I think if enforceability is desired it's very it's very important that the language is very explicit that these make-whole premiums are do after acceleration or upon any repayment prior to the stated maturity date in the instrument but like you know excessive forbearance fees I think a lot of times the course do not understand the rationale for prepayment premiums so in addition to those items I think it it's also it would be helpful to describe the rationale in the document for the make-whole premium with racino we talked a little bit above kind of where the bankruptcy courts are in state courts they're usually disfavor because you know the borrower's are forced to exit or sell collateral to repay the lender you know enforceability is probably even less certain in state courts than a bankruptcy courts all right we have a question from a participant the question was does the cognitive paragraph have to be the last paragraph in the document with the signature directly below it's a good question so there are really two components of an effective cogno that in your documents first you want to have a warrant of attorney that's going to be in the body of your document while you know we typically like to have that be bolded or underlined or really stand out from the rest of the document that does not necessarily have to be the last paragraph of the body of the document which you may be getting at and what is absolutely critical and there is no room for error on this is the specific warning paragraph and the relevant Ohio statute on this because the language is fixed by law is section 23 23 13 and that section has very specific language and it's very specifically states that that warning paragraph 1 must be more conspicuous than any other language in the document so for us that means if our document size 12 font Vista size 14 underlined bolded anything you can do with a border around it it needs to stand up with anything else on the document headers included and additionally the signature does need to be directly below it and unfortunately sometimes when we inherited credits with the existing documents they may have a cognitive warning at the top of the page and have signatures running down serially you know signatures signatory a b c d down maybe it stretches multiple pages and really the proper way to do it is warning block signature warning block signature for each person it tells a lot of trees and burns a lot of ink but that is technical compliance with the statute and that is absolutely non-negotiable when it comes to having an enforceable cognos under Ohio law yeah I would add to that too that in a lot of forbearance agreements we we put the cognitive warning and signatures at the tail end of the forbearance agreement yeah and so I've seen there's some very I have schools of thought on hether you need them but which of your documents needs them I think we can all agree your loan agreement or credit agreement will have it if you have a cognitive it your promissory notes absolutely positively must have them because in most circumstances you're going to have your promissory note it's going to be your primary evidence of indebtedness so when your lawyer is taking your note to go be enforced and to go get the COG know that they're going to submit the note and that is the confession of judgment that the courts going to be relying on to give you your cognitive judgment the same with guarantees they have same with guarantees occasionally we've seen the kitchen sink thrown at them where they are in every document including Epstein is not a disbursement letter believe it or not I think that is will certainly overkill but you know anything that's tying back to a credit agreement and amendment or a promissory note you know those are the core documents you're going to want to see their cognitive and rights and because that's what you're ultimately going to be suing on to get that judgment and it is hugely helpful to have originals when you go to court okay couple more hot button items real quickly effect on subordinated debt this is probably pretty obvious but you know check your agreements there are notice provisions you want to make sure that money is not leaking out to subordinated creditors if they're not entitled to it flood zone certifications if you have mortgage to property that's serving as collateral that's in a high-risk flood zone there's got to be insurance your borrower will typically pay for it they may push back but under the National Flood Insurance Program it is mandatory that there is insurance on that property one other item I have it's not listed but if you're dealing with military servicemen be careful especially in a consumer context especially in a foreclosure context but the serviceman Civil Relief Act will come into play and there are penalties if you proceed improperly against servicemen last two items for deposit accounts if your collateral consists of deposit accounts make sure that your perfected by control in the deposit account because of proceeds of your federal are deposited in a deposit account over which another lender has security interest that's perfected by control the other lender will have priority over such proceeds even if those proceeds are from your collateral that's the deposit account priority rule in article 9 so you make sure that the deposit account control agreements are in place that they properly describe the relationship and as a lender do not release liens on your collateral until the payoff is received by you not deposited into your borrowers deposit account at another bank and the last thing I wanted to touch on is material contracts we previously briefly discussed collateral assignments of material contracts those collateral assignments typically are called consents and agreements and I think the key takeaway here is to understand your borrower in the industry of your borrower for example with a power plant if a power plant is being constructed and the owner of the power plant is going to be using natural gas from the interstate pipeline that's 25 miles away to to burn and Bend the turbines and the owner of the power plant contracts with a third party for the transportation of that gas it's you know that's a situation where that that transportation service agreement by which the pipeline company will be transporting the gas to the power plant that's a pretty material contract because without gas that power plant will not be able to operate so that that would be a material contract for example for both the lender that's providing funding for the construction of the natural gas lateral line as well as the lender on with respect to the power plant and you know just to kind of take that example further regarding knowing one's industry you know in the power-plant context there might be various water supply agreements water discharge agreements those are crucial agreements because without water they're not able to cool the turbines and operate the plant so the material contracts that's something that's a lot of times either overlooked or not giving in that given enough enough look at the origination stage of the loan but it becomes critical especially when there's distress and various options have to be considered this time we'd like to thank you for joining us today should you have any questions after this call feel free to reach out to drew Jeff or Alya this concludes our program thank you