Debt Restructuring
Fairway 21 has seen and experienced the ups and downs of the industry. We have successfully, while painfully, navigated two financial crises – the regulatory crisis beginning in 1990 and the real estate crisis in the mid 2000’s, both which impacted banking behavior, leading to recession.
We know what it means to restructure our own properties, as well as to work with tenants to help everyone stay in business. In suppressed market conditions, success requires transparency, character and commitment to working through situations with lenders, owners and tenants. Our goal in debt restructuring is to create “win, win, win” agreements – the kind that tighten belts, but that, through asset recovery, ultimately lead to market recovery.
And it’s not all bad news. There are a number of reasons businesses seek debt restructuring or refinancing.
When interest rates drop, you may be able to create more favorable terms and a better repayment structure through a restructure or refinance. When debt is spread across too many categories, it’s possible to consolidate loans through a refinance under a single umbrella with a single payment, simplifying your accounting while negotiating better monthly payments and interest rates.
Even the most successful companies experience bumps in the road. Unforeseen circumstances can bring financial strain, stretched resources, and the kind of stress that can result in knee-jerk reactions that ultimately hurt the business. Our restructuring specialists can often give you the opportunity to work with your current lender to renegotiate the terms of existing loans.
When your company starts to feel the pain of economic instability, it’s time to start planning a strategy to proactively manage your finances. Our team will work with you to execute a debt restructuring plan that matches your unique needs and allows your business to recover. Fairway 21’s expert advisors will evaluate your business, analyze debt, and work on your behalf to consolidate debt, negotiate rates and adjust terms to suit your current cash flow. We work to ensure that you avoid the costly and agonizing process of bankruptcy, and instead can continue to run and grow a profitable business.
“Having a 30-year relationship as a partner and friend of Eliot bonded through his indomitable will and resolute to go the extra yard to ensure the best outcomes possible. Eliot is tireless, steadfast, and simply “gets the job done” successfully no matter what. He is candid, direct, and business savvy and has realistic qualities that are often lacking in today in the business community. In 2008 during the great recession, but for Eliot’s efforts and business and real estate experience and expertise we could have lost a significant portion of our real estate portfolio resulting economic devastation. We suffered no loss of property and with the cooperation of the banks we had a complete turn-around over time.
– Michael E. Lewis, Test Drive Inc
At Fairway 21 we prefer to call it a “workalong.” We see our work as a collaborative effort with a common cause and a constructive result.
If ownership of a retail center is unable to successfully “work along” with tenant and bank, the consequences could be significant both economically and personally to all involved.
Potential solutions vary, but at the very least our goal is for tenant, owner and lender to agree to reasonable alternatives. Debt restructuring can provide critical space for a tenant’s business to improve, avoiding an unstable and painful situation for owners, lessees and lenders alike.
It is noteworthy that the “work along” can often be accomplished without additional financial suffering. The retail environment has been moving in this direction, and residential real estate is on the horizon. With the circumstances of 2020 impacting businesses around the globe, “workalong” has become a part of every business conversation today. If you are feeling the strain, you are not alone. Leaders in every industry have been feeling the pain.
Restructuring or Refinancing
Restructuring and refinancing are two terms that are often confused.
They are both methods of changing debt obligations but are different in fundamental ways. Restructuring is the process of altering an existing contract so that new terms are agreed upon and put into place. This can mean a longer repayment period or a lower interest rate. Businesses often use this method to obtain better rates, even when they’re not facing a financial crisis.
Refinancing involves opening new financing and using the funds from the new loan to pay off the existing loan. This can benefit the borrower’s credit rating because the old loan has been repaid.
If owners of a retail center are unable to successfully “work along” with tenant and bank, the consequences would be significant both economically and personally to all business parties, possibly resulting in loss for all parties involved.
Potential solutions vary, at the very least the desired outcome is tenant, owner and lender agree to reasonable alternatives with hope tenant’s business improves eluding an unstable situation for owners and lenders. It is noteworthy that the “work along” can be accomplished in a way that ultimately will ease the financial burden, opening up a window of opportunity for business owners.
– Eliot Subin
Restructuring tactics
Debt restructuring takes place in a number of different ways. One tactic for debt reduction is a debt-for-equity swap.
In a debt-for-equity swap, a creditor will forgive debt in exchange for equity in the borrower’s company. The current market rates are used to determine both the value of company stocks and bonds, and the exchange values can be negotiated to entice trade. A debt-for-equity swap satisfies debt for the borrowing company while increasing cash on hand.
In certain circumstances, creditors will agree to take what’s called a “haircut” on a debt. The haircut is a percentage of the difference between the market value of collateral and the value ascribed to the property by the lender. This is a cushion to protect the lender against market fluctuations. A creditor may be convinced to re-evaluate collateral value and write off interest payments or a portion of the principal balance based on that re-evaluation.
Typically, it is not in their interest for creditors to resist restructuring negotiation. The creditor doesn’t want to deal with the hassle of bankruptcy filings or a default. Most creditors are willing to accept restructuring terms when negotiations are handled properly. Successful restructuring negotiations can result in interest rate reduction and extended payback deadlines. This is often preferable to refinancing, which can be blocked by call provisions, preventing the borrower from completing an early repayment.
Why you need a professional
You might be wondering: If restructuring simply involves speaking to creditors, why not simply do it yourself?
Restructuring negotiations require a thorough knowledge of bankruptcy law, creditor rights, valuations, lending practices, and more. Unless they are handled by an experienced negotiator with a strong history of success, less than optimal terms may result.
While managing workouts of several properties during the real estate (economic) crisis of 2008 the overriding takeaway is that ownership, tenants and its lender(s) are fully intertwined.
-Eliot Subin