Debt Advisory
The credit crunch presents numerous challenges for investors. Nowhere is this more apparent than in the debt markets. Bank lending rates are at historical lows. The loans that are originated today are far more conservative and underwriting standards are far more stringent than they were during the heady days of the credit boom.
For borrowers, this means refinancing existing debt can be difficult, costly and for some assets, impossible. Whilst the debt markets have recovered somewhat since the collapse of Lehman Brothers in September 2008, there is still a substantial gap between available bank financing and what is required to refinance the wave of impending loan maturities to come. Set against a backdrop of widespread risk-aversion stemming from the European and US debt crises and rising inflation in emerging markets, it is not surprising that forecasters in the debt markets are predicting more stormy weather to come.
The problems of today’s debt markets are compounded by the complexity of instruments originated during the credit boom. Borrowers seeking to negotiate with their banks may now find that their loans were broken up and sold to a syndicate of lenders, including issuer vehicles that purchased the bank’s debt with funding raised through the issuance of rated bonds. The process of pooling such debt instruments together and repackaging them into smaller units for sale in the investment markets is known as “securitisation.” See our CMBS primer for more information
Our work
American Appraisal and its subsidiary REAG can help its clients weather the storm. With over 30 years combined experience in corporate restructuring and securitised debt workout, American Appraisal’s Debt Advisory team have the technical expertise and market savvy to find solutions in even the most challenging circumstances. Here are just a few of the services American Appraisal and REAG offers:
Borrowers – The key to a successful loan workout is to understand creditors and their commercial aims. We know because we have experience as both lenders and advisers in complicated loan transactions working opposite borrowers and creditors. In our experience, the “art of the possible” depends largely on the debt service potential of the assets collateralising the loan, the transaction documents and the motivations of the lenders now holding the debt. Drawing on our expertise in structured finance and business valuation, American Appraisal can help clients tailor their business plans and restructuring proposals to address the competing demands of lenders across the debt stack, whilst also defending the interests of company tasked with delivering the plan. Our subsidiary, REAG, can also provide support for borrowers developing business plans for loans backed by commercial real estate.
Bank Workout and Loan Servicing – Our debt advisory team has worked on some of the most high-profile restructurings and insolvencies in the UK and European markets in recent history. We understand the challenges lenders face trying to assess workout options on transactions with complicated intercreditor arrangements and COMI considerations. That is why American Appraisal offers lenders a consolidated approach to workout options analysis. Our approach starts with a business review in which we estimate the borrower’s future cash flows, debt-service capacity and exit value for a range of different workout options. From these building blocks, we get to work understanding the precise mechanics of the finance documents and cash distributions to the finance parties. For securitised debt, we can take this one step further and consider cash distributions to bondholders. Finally, we distil our findings and present our clients with our recommendations for maximising recoveries on their debt. In addition, we can provide clients with transaction support to assist with execution of their preferred loan workout strategy.
Buy-side lenders – There is increasing demand in the market for distressed debt from private equity, hedge fund and institutional high yield debt investors. Whilst the yields may be attractive, sourcing investment opportunities and valuing these positions can prove difficult. American Appraisal has experienced loan workout specialists who are active in the debt markets that can assist with sourcing and underwriting buying opportunities. In addition, we offer clients transaction support on restructuring, domestic and cross-border liquidation, and other loan-to-own strategies.
Issuers, Cash Managers and Note Trustees – As loans in securitisations default, issuers, cash managers and note trustees face tough questions from bondholders and auditors. American Appraisal can help clients value loan collateral, review cash waterfalls and provide guidance on the overall structural mechanisms at work in the securitisation.
Bondholders – By bringing together structured finance specialists, financial analysts and property valuation expertise, American Appraisal can assist bondholders with analysis of restructuring options.