Case Studies in Risk Assessment

Background

Retained by a $36 billion financial services company to provide its commercial banking division an evaluation of a 200,000 s.f. indoor recreational sports facility.  The loans, backed by Small Business Administration (SBA) loan guarantees and additional state direct financing were significantly under collateralized albeit meeting current debt service obligations.

Need

The bank was seeking a means to help its borrower begin planning for the maturity of its loans recognizing that the business was slow in recovering from the 2008-2009 recession.  The recovery was further complicated by depressed asset valuations that had the potential to make the repayment of the loan in full unlikely thereby triggering possible collection action under the owner’s guarantee with the bank.  

Process (Diagnostic)

The initial focus was discussing with ownership how the business fit within their wealth building strategies, explaining that the pending maturities served as a threat to their personal net worth.  Thereafter, we completed a competitive analysis and industry peer review comparing the borrower’s performance against area competitors and industry standards, highlighting areas for process and revenue improvements.  We further identified alternative funding sources that may provide gap financing should the collateral air ball remain.

Result

The borrower ultimately refinanced its loans with the bank and dramatically improved its cash flow through, among other things, installation of energy efficient lighting that improved debt service capacity.  The bank continues to have a performing loan where its exposure has been dramatically reduced.