SS&C recently participated in an online panel with IMN to discuss tranched loan workouts, forbearance and restructuring. Topics included lender strategies for defaulted loans and managing mezzanine loan foreclosures.
As the panelists pointed out, the mezzanine holder is sandwiched between the mortgage holder (Lender) and equity holder (Borrower), so the rights and limitations of this structured debt are governed primarily by the intercreditor agreement. The ability to constructively interact with the mortgage lender for any remedies is essential for maximizing returns on mezzanine debt.
In today’s challenging economic times, borrowers are starting to have difficulty paying and are therefore requesting forbearance agreements, which heighten the interaction requirement between all parties.
How can technology enable all parties to focus on the deal rather than the accounting?
SS&C’s role provides numerous solutions for accounting and back-office work that provides transparency and efficiency to the debt holders. Regular interest on a nonperforming loan is challenging enough, especially if late fees, default interest, compounding and other calculations are required. These calculations must be accurate when drafting forbearance and modification documents to support negotiations, which makes a reliable and sophisticated system increasingly important.
SS&C also offers external web portals for borrowers and lenders to retrieve detailed loan information and monitor loan performance. In addition, SS&C Intralinks provides users with a virtual data room for highly secure document and data sharing, which is a key component to the deal-making process. The data room allows for secure parties to share and retrieve the latest information.
Depending on the motivation of the investor and their investment strategy, mezzanine lending can increase the opportunity for increased risk and return, or potentially, real estate ownership and management. There is now a significant amount of foreign ownership in the CRE investment space, with potentially different objectives from a traditional domestic fund. Foreign entities may not be prepared to take over ownership and management of a property so we may see foreign investors liquidating this distressed debt in the coming months.
It seems many firms are building a war chest to capitalize on this potential opportunity. That may be a reason why more than 500 people attended this webinar. Many states are reinstating some level of a shutdown, which could increase the likelihood of opportunities in this space. Watch the "CRE Mezz Loans, Workouts & Loan Modifications" webinar recording to learn more.
Alternative Investments, Commercial Lending