Case Studies: Work-Outs
(Fred Knapp ’12 and Lynne B. Sagalyn, 2012)
Students are asked to develop a strategy for a mid-sized private equity firm to protect its position on its mezzanine loan to a sovereign investor in the W Hotel after the financial crisis sent the hotel market on a downward spiral.
(Lynne B. Sagalyn, 2010)
Students are asked to write a business memo outlining the reasoning and proposed strategy for restructuring a self-storage construction loan.
(Merrill Lynch Private Capital, 1993)
A challenging case involving an analysis of alternative positions for Merrill Lynch Private Capital (MLPC) in a troubled condominium development project. The problem centers around a $12.7-million loan secured by first, second, and third mortgages on various parcels of real estate, all located at the southern tip of Miami Beach. The borrower has sought protection under Chapter 11 in response to foreclosure proceedings brought by the first mortgagee and MLPC. While there is value in the collateral, it is less than the balances on the triple tiers of debt. MLPC must decide whether to try to renegotiate an existing bankruptcy plan, oppose the plan and push for foreclosure, or walk away from the investment.
(Percy Pyne MBA ’73, The Pyne Group, 1992)
The case problem focuses on options for repositioning this landmark property in lower Manhattan, now nearly empty and facing foreclosure for the second time in five years. The operator of the 1.1-million-square-foot building has lost all of its equity; the mortgagee has seen its collateral drop 85–90 percent in value. The building’s bricks and mortar are in desperate need of repair, and its mechanical systems must be modernized. Taking the position of the fee owner (holder of the ground lease), students are asked to address several questions: How can this Manhattan landmark be revitalized? What is the best way to raise capital to complete the necessary repairs and retenant a building with a negative cash flow (before debt service) when rental markets are severely depressed, capital is scarce, and values do not seem to have bottomed?
(Jeremy FitzGerald MBA ’90, Victor Capital Group, 1992)
Adopting the role of a consultant for a successful midwestern developer who is caught in the squeeze between falling rents and high leverage, the student is asked to develop a strategy for restructuring the borrower’s loans with its foreign bank lender. The case requires an integration of financial analysis and negotiating strategy in an effort to formulate a proposal that will be appropriate to the problem’s institutional context.
North Woods Office Park
(Teachers Insurance and Annuity Association, 1992)
The case represents an example of a lender’s anticipatory revision of a potential problem loan. As typical of such problems, the approach to restructuring required an understanding of the economic fundamentals of the parcel, relative to conditions in the local market, and the needs and constraints facing both borrower and lender, as well as their mutual interests in resolving the problem.
Working Out the Troubled Loan Case: Emigrant Savings Bank
(Philip Milstein, Emigrant Savings Bank, 1992)
A bank officer for this respected savings institution must develop a solution for working out a troubled $1.25-million mortgage loan on a 26-unit residential building on the Upper East Side of Manhattan. The key to the case is understanding how economic conditions in the residential market have changed since the loan was originated five years earlier. Using actual loan materials presented in the case, students are asked to outline negotiating strategies for the borrower and the lender that may enable both sides to find an acceptable compromise.