Loan Sales Case Studies

DebtX’s Loan Sales Advisory Group provides loan sale services and enables active portfolio management. We facilitate the entire loan sale process for performing, sub-performing and non-performing loans, including, portfolio analysis and pricing, deal preparation, marketing, trade execution and closing.Case 

Our Client-focused Loan Sales Strategy and Management Approach

We are focused on our clients’ primary goals in the loan sales process:

  • Maximize recoveries

  • Increase certainty of execution

  • Close deals within pre-determined timelines

  • Leverage smooth and efficient process

Case Studies

Regional Bank: $51.2 Million Non-Performing Hospital Operator Loan Relationship

Seller Goals and Concerns:

A regional bank sought advice on how best to exit a large and complicated multi-loan relationship with a hospital. The bank had provided construction financing to a hospital operator to construct and operate multiple complimentary businesses including skilled nursing, assisted living, memory care, and health and wellness and rehabilitation facility. Construction was completed but the complexity of running multiple businesses, combined with aggressive assumptions around business ramp-up rapidly overwhelmed the sponsor and they fell significantly behind original operating projections. Several business consultants were engaged but it became clear that both working capital and time were needed to stabilize operations. The original sponsor lacked the wherewithal to provide more capital and the bank deemed additional funding far too risky given their lack of confidence in the existing operator.

The bank was very experienced with simple CRE secured workouts and foreclosures but recognized the operationally intensive nature of critical care operating businesses. They correctly recognized that a foreclosure and closing the business would result in a catastrophic loss of both franchise and real estate value and agreed that a loan sale would likely result in the highest value recovery for the bank.

Solutions and Outcomes:

DebtX analyzed and presented the complicated financials of the interrelated businesses, stressing the opportunity for an experienced and well capitalized operator. Also highlighted was the new construction nature of the underlying assets, along with new FF&E, which would accrue to the benefit of a new operator in a takeover scenario and/or debt for equity swap.

Recognizing the unique yet complicated structure, industry, and asset base, DebtX tapped its extensive investor database and conducted a nationwide marketing campaign covering sector specialists, operators, private equity groups and large family offices known to partner with and fund smaller experienced operators.

DebtX’s extensive investor outreach and marketing campaign resulted in 161 qualified investors groups executing a confidentiality agreement to access due diligence materials and evaluate the subject opportunity. Multiple competitive bids were submitted following the four-week marketing and due diligence period. DebtX and the bank chose the high bidder, an experienced operator with whom DebtX has closed multiple transactions over its 20-year history and the loan sale transaction closed the next week with no further due diligence, no financing contingency and no changes to the bid.

Local Bank: $3.1 Million Non-performing Railroad Contractor Relationship

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

Finance Company: $19 Million Sub-performing Franchise Finance Relationship (Part of a programmatic sale and 12-month wind down of a $335 million franchise finance portfolio)

Seller Goals and Concerns:

This global financial services company sold their performing portfolio through a strategic sale to another bank and was desirous to exit their sub and non-performing portfolio of franchise (restaurant and C/G), aircraft (JDC portfolio) and similar franchise loans secured by real estate and/or UCC filings. DebtX was retained to strategize the sale effort, force-rank and execute on a large and diverse portfolio of loans in multiple pools and individual offerings with the goal of driving highest and best proceeds within a defined timeframe.

The loan relationship denoted above was a relationship secured by 30 Taco Bell Franchises (leased and owned) located in the Western US. The loan had been performing however, the borrower was over-leveraged, and the cash-flow was significantly strained by the growth in units. Though financial results were provided it was likely the borrower would need to conduct sale-leasebacks to generate additional cash to support unit growth. The borrower was not in compliance with EBITDA and leverage covenants and was in need of securing additional capital.

Solutions and Outcomes:

DebtX was highly confident that the right investor for this loan would be a counterparty that could energize the sponsors’ business and provide the right capital structure to enable them to execute their growth strategy.

Given the industry and the limited number of investors who regularly participate in the franchise space, DebtX was able to find crossover investors who could understand the “story”. We tapped our extensive investor database and conducted a nationwide marketing campaign covering sector specialists, operators, regional and entrepreneurial banks.
DebtX’s extensive investor outreach and marketing campaign resulted in 76 qualified investors groups executing a confidentiality agreement to access due diligence materials and evaluate the subject opportunity. Multiple competitive bids were submitted following the four-week marketing and due diligence period. DebtX and the finance company chose the high bidder, an experienced operator who was familiar with the concept and had other loans to operators in other regions. This buyer was new to DebtX, and the loan sale transaction closed the next week with no further due diligence, no financing contingency and no changes to the bid.