Pub. 15 2020-2021 Issue 1

WWW.NEBANKERS.ORG 20 Distressed Lending Beyond the Bank Loan Portfolio Gary Grote, Managing Director, Bridgepoint Investment Banking B ANKERS UNDOUBTEDLY SPENT THE better part of March to May 2020 dealing with stressed, scared and frustrated clients while trying to play mind reader with the SBA. Covid-19 is sure to stress the bank’s loan portfolio as businesses face varying impacts of the health crisis. Larger re- gional banks likely have a special assets group with bankers trained to deal with these special situations. But even for these bankers (and especially for community bankers tasked with wearing both the business development and special asset manager hats), there may come a time where the bank customer is better served by a specialty lender for a period of time. These specialty lenders are happy to work in partnership with a local bank that con- tinues to provide non-credit services like cash management. Bridge Financing A liquidity shortfall, pending debt ma- turity or overleveraged balance sheet does not indicate a failure of leadership. Situa- tions like this are often caused by industry cycles, changing regulations or shifting markets that, as a result, have a negative impact on an organization’s financial ar- rangements. Moreover, situations like this do not have to mean bankruptcy or sale. There are forms of financing — referred to as bridge, stress or rescue — that can be leveraged as a solution to the problem. Understand that a special financing situ- ation can surface in any industry during any point in an economic cycle. Bridge financing is an interim option primarily used to fulfill a company’s short-term working capital needs until a more long-term financial solution can be