Recently, Professor Joshua P. Fershee posted a very interesting observation on the Business Law Prof Blog.  

Professor Fershee comments on a legal concept called the "single enterprise" theory, and on references to this concept by the US Supreme Court in a decision published by it this past summer (Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 [2011]).

Briefly, this concept or theory treats affiliated entity structures as a "single" organization or enterprise when their business is so intertwined or connected that they should be viewed as a "single enterprise."  Consequently, the legal distinctions or separateness is disregarded, or "pierced."  In legal talk, disregarding (or ignoring) a legal entity is called "piercing the corporate veil" – as in pushing the entity curtain or veil aside and exposing the owner hiding behind it.

While the US Supreme Court did NOT rely upon or apply the single enterprise theory in its decision, Professor Fershee finds the reference troubling.  "Scholars have argued that courts embrace veil piercing too easily, and I think that’s often true. Here, even in denying the claim, the Supreme Court reinforced that is the rule. (emphasis added)"

I agree:

  • By discussing the concept without giving guidance on the proper use of it (or without commenting that use of it is the exception and not the rule), the Court encourages the legal profession and the courts to explore the use of it

This includes possibly using it to attack or question mortgage finance structures that utilize a special purpose or single purpose borrower.  (This covers billions of dollars of commercial mortgage debt.)

This borrower structure often is called a "SPV" or an "SPE.  It is a structure that goes to the heart of, or at least is a vital organ in, a common commercial mortgage debt structure used by portfolio lenders (typically, life insurance companies) and securitized lenders (CMBS).   (Again, billions of dollars of commercial mortgage debt.)

The SPE structure is intended to make the borrower entity "bankruptcy remote," so that it will be "remote" (or unlikely) that the borrower will go into bankruptcy, or that the assets of the borrower will be dragged into the bankruptcy of its owner.  A bankruptcy, of course, will delay (or possibly even alter) payments to the mortgage lender, and would not allow the lender to exercise its remedies (such as foreclosure). (Here’s a glossary of common terms.)

The "single enterprise" theory came into play early in the General Growth Properties bankruptcy case.  However, the case was resolved without fully developing or addressing this doctrine.

The American Bankruptcy Institute, however, recognized the continuing "life" of the single enterprise theory in its paper covering early proceedings in the case:  "As commentators have stated, in the end, the General Growth decision on the lenders’ motions to dismiss stands for two major propositions as it relates to commercial real estate loan documents: bankruptcy remote is not bankruptcy proof, and the financial condition of the enterprise is at least equally as appropriate a consideration as is the financial health of any single member of that enterprise in reaching a determination on filing a Chapter 11 case. (emphasis added)"

If Professor Fershee is correct, the Supreme Court will have us tangling with the viability of the SPE structure in the near future.

If you have any comments or other information, please post below.

Recourse against individual owners or sponsors (andor their operating companies) is a significant leverage point for any lender in a distressed commercial real estate loan.

Both CMBS loans and portfolio loans (typically life company) technically are “non-recourse” in that the lender agrees to look to the collateral for the ultimate recovery of the loan. However, the loan documents “carve out” or reserve liability in the event certain events occur, or if certain loan document provisions are not followed. These liability events or provisions are called “bad boy carveouts.”

Generally, courts are tending to enforce bad boy provisions very literally, exactly as written – and have not accepted arguments (or readings of the provisions, statutes or other case law) to allow bad boy guarantors (or indemnitors) to avoid liability.

The "deal" is the deal; and it could be a big deal.

Generally, there are two types or categories of bad boy liability:

  • Actual Loss.  Upon the occurrence of the event, or breach of the loan document provision, the guarantor (or indemnitor) is liable for the actual loss or damages incurred by the lender.
  • Full Liability.  For this category, liability for the entire loan comes into play (regardless of the actual loss or damage incurred by the lender).  In other words, the non-recourse loan becomes full recourse.

In other postings, I’ve discussed some of the "new" bad boy liability events (as "lessons learned") -even as part of a deed in lieu transaction.

Below is a list of typical bad boy provisions (or recourse events) that often were overlooked at the time of closing the loan, but can be very influential during a workout, and a source of recovery for a lender following foreclosure.

Stripping the “no liability” feature from a loan can be a meaningful tool to a lender or servicer.

  • Allowing a lien that is prior in rank to the lien of the loan. Example: tax liens; M&M liens (in states where they prime or have priority); etc.
  • Waste committed by Borrower or that occurs on the property. Some states have very broad definitions of “waste” – such that failure to maintain the property could qualify as waste
  • Separate and distinct paper work. Examples: tax returns; financial statements; stationary; invoices; checks – this list can go on for over a page
  • Failure to maintain adequate capital. Example: distributions of net income were made and then the entity needs capital in order to improve the property, finish out space for a new tenant, etc.
  • Solvency requirement (provision stating the borrower will not become insolvent and will not fail to pay is debt and liabilities as they become due).  Example: if rent does not cover operating costs and debt service, then . . . the borrower is insolvent.
  • Bankruptcy (voluntary or involuntary, where Borrower fails to obtain dismissal). Example: Ownership is forced to infuse capital into Borrower even though cash flow is not sufficient to pay operating costs and debt service
  • Lock box & cash management.  Failure to create or maintain the lock box and cash management of rent
  • Transfer of interests. Broad definitions of the “mortgaged property” can trigger a recourse event when a "transfer" of an interest in the collateral is a bad boy event .  Examples: granting a new easement, consenting to the widening of a street, settlement of a zoning dispute or of a boundary line or fence disagreement.

I’ve closed numerous new loans for life companies and CMBS lenders during the last 6 months. It is interesting that these provisions were not given much attention during those closings – probably because the borrower was just thankful (or amazed) for the privilege of closing a new loan.

If you have other bad boy events that you view as important, please comment below.

. . . continuing my discussion with Nelson Block** on the basic and important question of collateral descriptions:

Keith: Pick one of the biggest changes or trends over the last 15 years on the topic of collateral descriptions.

Nelson: In the last decade, with the rise of single asset developments, there should be no reason to limit the lender’s security interest to just one project, because the bankruptcy-remote special purposes entity ("SPE") only owns one project.  However, loan documentation has continued to limit the personal property description to personal property as "located on or arising out of the operation of" the specific real estate.  If the SPE only owns one project, then it could grant a security interest in all of its personal property.

Keith: So, how does this become important when a loan turns bad or goes into workout mode?

Nelson: In the workout context, the developer’s time and resources may be focused on things other than corporate record-keeping and maintaining the separateness of assets of each project.  Were the 10 replacement air conditioning units in storage set aside for use at Apartment Project A?  Will you have to prove that the cash proceeds in the Borrower’s bank account actually came from rent collected at Shopping Center X?

Keith: Ok, so tell me a suggested approach for collateral descriptions – for new loans and workouts, too.

Nelson:  In documenting new loans for single-assets borrowers, consider requiring that the borrower grant a security interest in all assets (which must be described by item or type, such as the UCC categories "fixtures," "equipment," "inventory," etc.).  During a workout, make part of your documentation re-work taking a security interest in all assets; and do this by supplementing your security agreement and UCC-1 filings, rather than taking new ones.  The 90-day preference period in bankruptcy must be avoided, and your old security interests will be there to cover much of the property.

If you have war stories or comments, please post them below. 

** I appreciate Nelson’s deep investment in the Houston community, and his devotion to our youth through Boy Scouts.  He is a Gilwell Fellow and even co-authored (with Tammy Proctor) a book on scouting: Scouting Frontiers: Youth and the Scout Movements First Century

 

Below are some observations and comments collected by me from formal and informal meetings, and random conversations though lunch on this second day of the 2011MBA-CREF Convention.

They do reflect my "coming up roses" word picture for ’11: we’ll have more roses blooming in the commercial real estate finance garden, but in ’11 we’ll still be dealing with the continuing bad or under performing product as well.

  • Technology: more signs that technology is changing commercial real estate –
    • Loan Servicing: Investment made by portfolio lenders and loan servicers in databases have been a huge help in assessing tenant-mix risk and in responding to tenant defaults.  This has been money well spent.
    • Loan Production and Underwriting: a next step in the use of technology will be the utilization, by commercial real estate lenders and servicers, of databases used by commercial lease brokers, who have built databases showing entire lease stacking plans (showing full lease terms) and debt payment terms covering buildings in specified markets; these tools will assist commercial lenders and investors in differentiating assets – and in making better investment decisions ("private is the new public").  
    • REO Management: increasingly, apartment rental rates and terms will use database-driven yield management tools, which allow apartment owners (and foreclosing lenders) to set apartment terms based upon "real time" market terms.  (One comment: 30-40% of all first-class apartment operators use this type of too.)
  • Market Share: CMBS – How deep is the CMBS investor market?
    • Life companies and hedge funds will only support annual new issuance of CMBS of no more than $100Billion
      Investors will fight for loan level information (at the time of securitization and during the entire term of the pool) ("private is the new public")
  • Market Share: Life Insurance Companies continue to "take back" market share "lost" to the CMBS loan market – How?
    • better pricing
    • better closing process (shorter loan documents, less structure, etc.)
    • focusing on "best" properties, in the "best" markets
    • let the 25+ CMBS lenders fight over the secondary properties

That’s it for now.  Off to lunch.

Please post your comments or questions below.

This is a series of blog entries in which we provide some quick answers to lenders’ frequently asked questions (FAQ).

We’ve addressed deeds in lieu of foreclosure in the past (link).  Here is some more information on it.

FAQ #32 – When should a lender (or servicer) seek/accept a deed in lieu agreement?

  • State’s foreclosure process is lengthy
  • Immediate threat to the property (is a receiver a better option?)
  • Borrower & Lender = common good
  • Unable to sell/refinance the property
  • Voluntary (on the part of Borrower)
  • Unencumbered by multiple loans (and NO mechanics’ liens)
  • Avoid foreclosure taint
  • The property is valued LESS than the loan (if this is not true, then other creditors will be motivated to attack the transfer)

FAQ #33 – What title insurance issues should be considered?

  • Do NOT release borrower from warranties of title (in loan documents) as it will void title coverage
  • Confirm: loan policy "converts" to or continues as an owner’s policy
  • SPE (owned by lender) vs. taking title in name of lender
  • Creditor’s Rights Issues: ALTA 21 not available
  • Important: non-merger provision
  • Decision: buy new owner’s policy or merely obtain binder?

Thanks to Courntey Bristow for her insight, experise and help in putting this FAQ together.

To read the entire Tough Times FAQ series, please click here.

Two things should be kept in mind. First, none of these questions can be answered in a vacuum. Questions should be considered with a thorough review of the file and an interview with appropriate loan officers. And secondly, many of the questions are worth revisiting from time to time because subsequent events will impact the answers.

If you have thoughts, suggestions or questions on this topic, please post a comment below.

Guest Writer – Eli O. Columbus, Winstead PC

What is a SARE case?
SARE stands for Single Asset Real Estate and is commonly used to describe bankruptcy cases involving debtors who own a single real estate parcel or project.  Given the economic climate, we have seen a recent surge in SARE bankruptcy filings and Winstead currently represents numerous secured lenders in SARE bankruptcy cases.

What is special about a SARE case?
The 2005 amendments brought several changes to the Bankruptcy Code’s treatment of SARE cases.  First, Congress removed the $4 million dollar maximum secured debt limit in order to qualify as a SARE.  Accordingly, the SARE designation can now apply to both large and small debtors alike.  This has opened the door for more (and larger) entities to meet the criteria of a SARE debtor.

Congress also expanded a special adequate protection rule for SARE cases.  The SARE amendments responded to complaints by secured creditors that real estate cases were often abusive and filed only for purposes of delay while debtors hoped for a local real estate market recovery.  The SARE provisions are designed to ameliorate this problem by forcing the debtor in such cases either to propose a workable plan promptly or to start making monthly interest payments to the secured creditor.  Failure to do either will lead to a lifting or modifying of the automatic stay.  The Bankruptcy Code now provides for a lifting of the stay if by the later of: (i) 90 days after entry of the order of relief (generally the bankruptcy filing date); or (ii) 30 days after the court determines the debtor should be designated as a SARE, the debtor has not filed a plan of reorganization that has a reasonable likelihood of being approved within a reasonable time or commenced monthly interest payments to the secured creditor.

What are the effects of the amendments on current bankruptcy litigation?
A SARE debtor should designate itself as a SARE debtor when it files for bankruptcy.  However, there has been a significant amount of recent litigation ensuing when such a designation has not been made, usually as a result of a motion filed on behalf of the secured lender seeking to designate a case as a SARE case.  This upward trend in litigation will likely continue as debtors attempt to bypass the SARE protections afforded to secured lenders under the Code.  SARE designation can be a little tricky since the property in question must be "passive income" in order to qualify for SARE designation.  For example, hotels, generally do not qualify for SARE treatment due to the "business" nature of the income.  Since the SARE lift stay provisions are measured from the later of 90 days after the bankruptcy case is filed or 30 days after the date the court determines a debtor is a SARE debtor, Winstead has advised its secured creditor clients in SARE bankruptcy cases to quickly file a motion to designate the case as a SARE case in order to avoid any uncertainty as to whether the SARE restrictions and deadlines apply.
 

Yesterday (Thursday) was the second, and my last, day of the conference.  As I did with the first day of the conference, I summarize some of the sessions.  So, here’s the executive summary:

From a session on bankruptcy issues:

  • as reported by the Commercial Mortgage Securities Ass’n in its press release, the bankruptcy court in the General Growth Property bankruptcy issued a good ruling on Wednesday.  The ruling recognized the integrity of the special purpose vehicle (or single purpose entity; also called "SPE") utilized by GGP in the ownership of each mall in its portfolio. (Recall that many GPP malls are owned by a SPE subsidiary of GGP.)
  • for detail on the importance of the SPE structure to the commercial mortgage lending industry, and for an understanding of the structure itself, take a look at the brief filed by the CMSA in the case.
  • briefly, the debtor-in-possession financing recognized the validity of the SPE structure: it did NOT place a lien on each mall (which are owned by separate SPEs) and the first-lien holders of each SPE-owned mall were given a first-priority lien on the cash collateral from their mall collateral
  • next step of interest in the case: the hearing on the bad faith filing issues.  Was it proper for the solvent SPE to be included in the bankruptcy of the parent GGP?

From a session on the challenges in complex transaction structures:

  • one of the first tasks in handling a distressed loan is identifying the parties and their issues.  For example: (1) whowhat are the creditor & borrower issues? (2) whowhat are the co-lender issues? (3) and if there is a separate servicer, what are the terms of the servicing agreement? The answers: find the documents.  Read the documents.
  • the many, varied structures of the credit stack present challenges simply in understanding the relationships between all of these parties.  Here is a short list of common structures: 1st lien & mezzanine debt (with one or more mezz debt positions; and each mezz debt could have all of the following structures); A note and B note (and the A note might be securitized); A1, A2 and A3 note (and the A1 note might be securitized); "true" participations of any of these notes (if not securitized); etc. Some of these credit stack structures will give you a head ache.  And often the borrower has NO knowledge of them – although a sophisticated borrower might recognize some of the clues pointing to a complicated credit stack.
  • for credit stacks that include securitized debt, the rating agency faces multiple challenges: (1) post-closing surveillance (in that it often does not have access to loan documents covering discrete loans in the credit stack); (2) issuing confirmation letters ("no down-grade letters") can be problematic for the same reason; (3) intercreditor agreements and loan documents might not comply with rating agency requirements
  • special servicers in securitized loan pools are being changed by the controlling class holders and the B note holders.  This can result in two different special servicers: one appointed by the controlling class holders for the entire pool; and a second by the B note holder as to the notes that it has first-risk loss.  Another complication, of course, is that the special servicer must be approved by the applicable rating agency.  And to further complicate it all, often the intercreditor agreement(s) have a higher rating standard than the standard required by the rating agency monitoring the pool.
  • some of the credit stacks are so complicated, that it is difficult for the servicer to determine "who" should receive notice of a change in servicing (or "who" should receive any other notice).  One answer is to follow the money: if the master servicer is the paying agent for the pool, the servicer’s treasury group has contact information.
  • against this complicated back drop, borrower’s often communicate to the incorrect lender! And have difficulty in indentifying "who is who" among this confusing group of players.
  • in a prior posting, we commented on the question of whether a borrower should intentionally default a loan that has been put in a securitized pool.  The panel noted these dire consequences for a borrower in special servicing: (1) default interest will accrue; (2) late fees will accrue; and (3) workout land is NOT "borrower friendly" – and if borrower does not obtain its desired result, there is no "free pass" back to the safety of master servicing.
  • for loans with "springing" lock box features: borrowers are refusing to do the paper work to create lock boxes.  This results in a covenant default under the loan, which triggers a transfer of the loan to special servicing.  Also, on several loans, local banks (who have long-standing relationships to the principal behind the borrower) have closed dormant, "springing" lock box deposit account – which is a real problem when the lockbox "comes to life" and the master servicer attempts to implement the lockbox structure.

From a session on loan surveillance:

  • each point of the mortgage compass is requiring more and better information: bond holders, rating agencies, federal and state regulators, investment committees, etc.
  • loans are being reviewed more often (even monthly)
  • all of this is a major difference from the late ’80s & early ’90s
  • what are some of the warning signs of a loan going "bad"? (1) exhausting a debt service reserve (recall: this type of reserve was used when a project was not stabilized); (2) exhausting a contingency line item (in a construction loan); (3) change in ownership of any portion of the credit stack (this is often difficult to monitor); (4) low utilizationoccupancy of space by tenants; and (5) ___________
  • surveillance needs to have a "forward" looking component, such as: (1) future lease rollover; (2) local market information and trends (new construction of competing projects; tenants looking for space; etc.); (3) sponsor level debt information (amount; maturities; etc.); (4) free rent and rental rate trends in the market; and (5) _________
  • use "free" resources available on-line
  • one problem for servicers: each lender seems to have their own, unique reporting form
  • one lesson in this "new" economy: real estate really is unique.  Thus, people need to understand and evaluate each tenant, project, market and principal.
  • one panelist briefly mentioned the all-important "mortgage experience adjustment factor" – which is a risk-based capital concept governing insurance companies who hold commercial mortgage debt.  Some time in the near future we’ll blog on that mind-boggling concept – and the draconian effect that it has upon insurance companies and their mortgage portfolios.  It is horrible.

This is my last posting on the conference.  It met my expectations.  Everyone agreed: it was the "best" servicing conference in years – undoubtedly because this is the worse real estate market in years.

Today it is back to the office, and the nitty-gritty of workout world.

Please post your comments, suggestions or questions below.

P.S.: back to the restaurant review thing – although there are "cooler" places to go in New Orleans, if you stay at the Hilton Riverside (the conference hotel), then you’re immediately adjacent to the Riverwalk Marketplace mall.  The Crazy Lobster (504.569.3380) is a free-standing bar and restaurant on the Riverwalk.  It is a good place to catch a breeze and a change of pace.  Like many places in NO, it has live entertainment in the evenings.  We escaped the conference for several lunches at the Crazy Lobster.  It is a short (100 yards?) walk from the Hilton.  (And yes, it is a GPP mall – and probably owned by an SPE.) (See discussion above on GPP and SPEs.)

The first day of the 2009 MBA’s Commercial/Multifamily Servicing and Technology conference has ended.

It has been a long day, filled with attending panel presentations and meetings with people over meals, in the halls and at receptions.  It started at a 7:30 breakfast and ended @ 10p (when I refused to join a group that headed toward B___n Street).

Attendance this year seems down by @ 40%-50% from prior years.  Indeed, several companies told me that they would not be attending this year.  And many companies seem to have sent only 1 or 2 people this year; instead of the usual 4 or 5.

It is late, and if I don’t get this down-load out soon, tomorrow will hit with more panel presentations and meetings – and I’ll "lose" these data points.  They are in the order collected by me during the day – and so they are NOT ordered by relative importance.  Here is the down-load  (remember, this is a blog and not a thesis or brief; and it is very late).

(One other preliminary and important thought: if your boss requires that you prepare a memo on the conference, consider this permission to cut’n paste as you wish . .  . . )

From the opening general session:

  • during the next 2-3 years, the commercial mortgage finance industry will focus on servicing & asset management, which will be the new front line for the industry
  • unemployment remains a key leading indicator of the performance of real estate as an asset class (and since unemployment is expected to increase, it will take several years for the asset class to recover)
  • while defaults presently are @ 3%, some predict that the default rate will increase to 6%; consequently, special servicing will become busier, and the need for greater transparency will be increased (in order to support better decision making) (Note the Fitch report described below.)
  • one speaker articulated five areas of focus for the industry: (1) greater transparency (with "real time" property performance data); (2) the need for high quality and detailed physical asset condition inspections; (3) greater focus on customized business plans for each asset, which points to the need for more expertise by special servicing; (4) the increase in defaults will strain human resources at companies (and require greater recruiting, more training and better integration); and (5) companies must be better at understanding macro trends and changes

From a session on developments in Washington, DC:

  • expect more changes and experimentation by policy makers
  • accounting issues include: (1) FASB 140 (true sale changes); (2) FIN 46(r) (balance sheet consolidation with the "primary beneficiary" of securitization vehicles); and (3) FASB 157 (fair value); all due to "FASB’s perceived suspicion" of real estate structures
  • REMIC reform will take a back seat to other issues at Treasury
  • Single Purpose Vehicle (or single purpose entities) and separateness covenants: the General Growth Properties bankruptcy will be an initial stress test of this "bankruptcy remote" structure; although one panelist labeled the GPP structure as "SPE light with bad cash management."  Another panelist called the GPP case simply "bad facts, which should not be followed by other situations."  (This last point puzzles me: a clever borrower might view the GPP case not as "bad facts" but as a "helpful road map.")
  • One panelist expects to see a new securitization in 3rd or 4th Q of 2009.  Wow.  Given all of the accounting and structure "issues" detailed during the day, anticipated increase in the default rate, etc. – a securitization in 2009 would be . . . well  . . . wow.
  • Federal limits on executive compensation are a huge problem for investors; and are chilling the market by impeding companies from participating in Federal programs
  • Terrorism insurance needs to be addressed . . . but the Executive Branch needs to cut programs – not increase the funding of them.
  • Welcome to the "Age of Regulation"

From a panel session on dealing with troubled securitized loans:

  • even life companies are starting to see their mortgage portfolios in distress (so they are focusing in-ward on their portfolios; and not outward to refinance CMBS loans)
  • the demand for new commercial mortgages exceeds the supply
  • long term, fixed rate interest mortgages are limited in amount
  • property values are difficult to establish
  • debt service coverage & loan-to-value criteria are very conservative (and thus underwriting is tough)
  • CMBS structures do not offer refinancing (with only a limited ability to extend)

From a panel session on today’s servicing challenges:

  • servicers are surprised that subordinate lenders do not understand their rights (relative to the rights of the first-lien secured lender)
  • communication among the lenders in the credit stack can be "challenging" (Wow; that was an understatement.  I’ve seen some deals where the disparate balance sheets and agendas of the lenders present the biggest hurdle to resolving a distressed project.  The project and the borrower can almost be an afterthought)
  • valuation is a huge problem: every party at every point of the debt stack and the equity stack needs a goodreliable value in order to make decisions.  No value=No decisions=No peace
  • as reported by Fitch Ratings in an April 29, 2009 special report, CMBS special servicing volume increased by more than 5.0X in the 15 months ending March 31, 2009 (from $4.6B at 12/31/07 to $23.7B at 3/31/09).  And these figures do not address distressed bank debt, nor distressed life insurance company debt.  More wow.

Taken together, I come away from the day with much the same impression as I did on that day three session at the EU conference last fall: no one is clapping.

Time to go to bed.

If you have your own comments, or follow up questions, please post a comment below.

P.S.:  Returning to the eating theme from my posting on Tuesday, and before I get some sleep –  here’s another good restaurant in New Orleans: Herbsaint Bar and Restaurant.  This is the second restaurant recommended to me by a New Orleans native.  I now understand.  It is very, very good.  Not as fancy as Nola; much more stylish than Jacques-Imo’s. And not in the French Quarter. Together, all three restaurants will pull me back to New Orleans.

The Headaches are Just Beginning
One of the real nightmares that lenders face is taking over the operation of "special purpose properties." I’m talking about properties such as hotels (with restaurants, bars, and liquor license issues), nursing homes, hospitals, and other types of very specific franchise operations.

Many times the licenses required to operate and run these facilities are personal in nature (i.e., they cannot be transferred effectively to lenders) or, if they can, the lenders must take some additional action to operate under the licenses. In many cases, the very nature of the financial institution of the lender opens issues as to whether or not the lender can, in the regulatory context, operate the facility. Many times a lender will need to create a master lease of the entire property to an entity that can act as operator.

Lenders should be very cautious in exercising rights to these "special purpose" property types. The uninitiated lender can very quickly get into unchartered waters and find the process very frustrating and difficult, as well as economically disastrous.