Workouts May Follow the Run on Money

On Dec. 13, the Federal Reserve Board is expected to raise short-term interest rates for the 13th time in the last 18 months, to 4.25 percent. With each tick upward, we presumably are getting closer to seeing bankruptcies and workouts come back into vogue.

Workouts — in which distressed debtors negotiate newer, more favorable terms with creditors in order to stay afloat — have been a dead letter in recent months, says Robert Anderson, chairman of the bank and finance group in the San Francisco office of Buchalter Nemer. The strong economy means fewer troubled loans, and low interest rates mean that when they do run into trouble, they often get refinanced — sometimes, nowadays, by hedge funds looking to diversify beyond equity investments, Anderson says.

But the lending side of the practice is still booming. “I’m quite busy with new lending transactions,? he says. Banks and other institutions are “still lending fairly aggressively.?

Jeffer, Mangels, Butler & Marmaro partner Richard Rogan, whose clients include financial institutions, says distressed borrowers have plenty of options, so “we’re very active in working with our clients to make sure they get paid in full.?

“There’s plenty of liquidity in the marketplace,? Rogan says. But, “as the cheap money supply tightens up, I think we are going to see a greater amount of deal flow on the dark side of the lending world, as we call it.?

When that happens, Rogan says, some debtors could be surprised by new Bankruptcy Code provisions that shorten the window for reorganizing single-asset real estate ventures. “If your skyscraper fails,? he says, the new provisions will “force things along quicker.?

— Scott Graham


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