Some analysts have been forecasting that there will be an
economic downturn in the next 18 months. What measures can you take now to
mitigate your risk and/or exposure if and when this downturn occurs? Wendy
Simkulak, Partner, Duane Morris
LLP, discussed strategies for evaluating and
managing risk and exposure from origination through and after a default during
the latest installment of RMA’s
Credit Risk Management Audio Conference Series.
In 2017, the number of corporate bankruptcies remained
flat and public company bankruptcies decreased. Filings have remained flat
throughout 2018 with the exceptions of the retail and energy sectors which
continue to suffer. However, these numbers may be changing as Simkulak’s
conversations with bankruptcy lawyers have revealed an uptick in business. With
the threat of an impending downturn, what actions should be taken to protect
the institution’s interests if and when a borrower experiences financial
difficulty or defaults?
When dealing with a borrower verging on or in bankruptcy, Simkulak advised
getting all documents pertaining to the loan in order, collecting amounts due,
and drawing on collateral. Once a borrower does default, Simkulak advised executing
on a guaranty, agreeing to forebear or restructure the loan, filing a
foreclosure on real property, or repossessing assets on personal property.
Vigilance is key to mitigating risk. Monitor the financials of borrowers and
when those appear to be tracking poorly, follow the company closely. Simkulak
said that institutions’ legal teams should have access to a national database
on borrowers who have filed for bankruptcies. Staying on top of at-risk
borrowers is critical in order to minimize the institution’s exposure.
Join us for the next installment of the Credit Risk
Management Audio Conference Series on January 8, Construction
Lending Update.