Seller Goals and Concerns:

This small Alabama bank had extended a loan to a local owner of a contracting business. The relationship was paid as agreed until the primary operating guarantor passed away unexpectedly.

Family members took over the business, but it was quickly determined that their lack of specific industry expertise was negatively impacting business operations and ultimately, loan performance. After a series of loan modifications, the borrowers became unresponsive and further loss mitigation actions were required by the bank.

The bank was experienced with simple CRE foreclosures but recognized a lack of expertise in locating, monitoring, and monetizing collateral primarily consisting of railroad equipment. The bank also recognized that a lawsuit against remaining guarantors would likely result in a protracted confrontation with significant legal expenses and an uncertain outcome. Passage of time with a hostile counterparty might also result in continuing diminution of collateral value and or inability to locate mobile collateral (trucks, trailers, cranes, etc.).

With DebtX’s guidance, the bank performed a comprehensive collateral inventory to determine exactly what collateral existed, where it was located and whether it was secure. This allowed both the bank and DebtX to accurately gauge value and the appropriate expected value to be generated from a loan sale. Upon analysis, the bank agreed that a loan sale would likely result in the highest value recovery for the bank.

Solutions and Outcomes:

While the bank had never sold a loan and was surprised that a market would exist for a small credit secured by predominantly business assets in rural Alabama. DebtX assured the bank that this type of C&I loan sale transaction was very familiar, and the market for small balance C&I is surprisingly robust, yet largely unknown to the general public.

The Trading Desk tapped an extensive small balance C&I database resulting in over 120 qualified investors executing a confidentiality agreement to review supporting due diligence materials. The four-week marketing and due diligence period concluded with multiple bids in excess of the bank’s expectations and below their loss budget. The loan sale transaction closed as agreed the following week.