July 2017

A real estate owner and manager of a portfolio of eight properties was in trouble with his bank lender and had been in a loan forbearance agreement for two years. The second-year forbearance was ending and the bank wanted to be out of the relationship at maturity. The value of the combined properties however was about the same amount as the total loan principal. Although the portfolio was generating positive cash flow after debt service it was clear that another bank would not consider the refinancing.

Enter Cambridge Financial Services. Rather than seeking alternative funding to directly repay the bank our consultant reviewed and analyzed the situation, compiled a funding proposal and brought in a distressed debt fund to entertain the “purchase” of the client’s entire loan portfolio from the fatigued bank. The structure of the deal was for the funding source to purchase the loans at enough of a discount so that within two years the properties would again qualify for traditional real estate mortgage loans and that would be the exit strategy for the fund. Before approaching the bank our consultant negotiated with the distressed debt fund the terms and conditions for a restructuring of the loans if they were successful in purchasing them. Basically, the distressed debt fund would receive a healthy return on its funded amount for the interim period and upon payoff the client would end up with a huge forgiveness of debt.

While the negotiations were fraught with problems, all the parties overcame them to reach a closing. In this case, the client stands to save $3 million in forgiveness debt upon repayment of the interim funding.

Nick Jalowski, Managing Director of Cambridge Financial Services, comments, “Complex distressed debt situations call for both creative financial solutions as well as large network of capital sources. Our firm’s consultants provide both.”

Another successful restructuring produced by Cambridge Financial Services, LLC.