Here's a real world story from the front line of loan workouts when I took on Carl Icahn and won.
Mr. Icahn owned a private golf club that, like pretty much every golf club in America, had some troubles during the GFC. Cash flow was not close to positive.The club was the centerpiece for lot sales in the surrounding community, but our loan was only on the golf course. And we all know how lot sales were going at the time.
The loan was maturing in about 10 months... I toured the property (didn't get to play it), spoke with the asset managers and asked them what the plan was to refinance our loan. The response was, "we will see and we will let you know". I checked in with them every month or so and never got much of an answer about what they were planning.
I couldn't do much because payments were being made.
Low and behold, On the maturity date I got a notice from our servicing group that a wire came in matching the loan balance. I never reveived any notice that a payoff was coming. So the way I look at it, I held my ground and we won... Well maybe not, but the lesson learned was doing business with people that have massive balance sheets puts you in a position for success.
In fact, after the GFC was complete, the workouts team was tasked with putting together a lessons learned from the GFC. I don't remember all of them, but I do remember this:When comparing the same loan with a sponsor that is 1) an institutional private equity investor with a fiduciary responsibility to investors vs. 2) a truly wealthy individual or family, the loan to the individual/family is less risky because they can make non-economic decisions to payoff a loan, even if the value has dropped below the loan balance.
