Game #6 of the World Series (my Rangers v the now World Champion St. Louis Cardinals) gives the Rangers some painful pointers on "where" to improve for 2012: find someone, anyone, who can get a third strike – for the last out in an inning, for a win of the game, for a World Series ring. Jon Daniels, GM of the Rangers, has a plan.
Kudos to the Cards; and to Jake Reby, who will reach into my wallet for a great meal a the next ACMA annual meeting.
Loan special servicers, bank special asset officers and workout professionals all understand the importance of slamming a loan to closure (or "resolution"). Just as baseball depends upon a good pitch from a skilled reliever, resolving a defaulted real estate loan often turns on strong, shut-down loan documents.
Of course, it is almost impossible for loan documents to address every imaginative and twisted (ok, creative) reading that a defaulted borrower (and its lawyer) will give the loan document.
But, just as the Rangers learned from the Game #6 melt down, this downturn illuminates topics and provisions in loan documents that need improvement. I’ve covered a few topics in earlier posts (use the phrase "lessons learned" in the search box on the right side of the page); here are a few more:
- LLC Borrower: if the borrower is a limited liability company, the prohibition of transfers and encumbrances provisions needs to expressly cover voting and management rights (this is a change of control concept)
- Tax Appraisal Objections: the power of attorney provision (from the Borrower to the Lender) should be expanded to include the ability of the lender to contest a tax appraisal
- Reporting Format: the reporting provisions (financial, leasing and operations) should allow the Lender the ability to require the use of a format that it useful to it; for example, in html, or in a spread sheet, or using specified data standards, etc.
- Force Majeure: this clause should expressly exclude economic downturns or related events as a possible force majeure event
My list of loan document improvements is a long one.
And until my Rangers win a World Series, I’m all hat and no cattle.
Please share your favorite loan document improvement by commenting below.