Your Loan has Been Assigned to Special Assets…What Now?
Even if this were possible, it would likely behoove you to change banks anyway, since you’ll forever be wearing a scarlet letter “W” (for Workout) in the mind of that bank’s officers. So, make the mental cut: your bank has decided that it no longer wants your company as a customer, and expect that once you are in Special Assets, you will have to replace your lender.
What to Expect Next
First, if you even suspect that you might be a candidate for assignment to Special Assets, get out in front of the issue with your banker. Ask about your bank’s process when a borrower begins to experience distress. Does it transfer the loan to a Special Assets department? If you are borrowing from your bank’s asset-based loan department, that group typically handles its own workouts, since its lenders presumably know the collateral well.
What are the triggers for your institution in transferring credits to workout? Are there any other borrowers in the printing industry also in distress at your bank? Does your lender simply want to exit the printing industry?
Take the bank’s temperature—how aggressive is it with customers assigned to Special Assets?
• Your lender will likely increase reporting requirements.
If your loan is secured by the company’s receivables and inventory, expect that your lender will notch up the reporting requirements that relate to the collateral. Monthly reports will be changed to weekly. As excess availability under the lending line gets tighter, your lender may request daily reports.
The bank will likely also increase the frequency of field exams, physical inventory counts, appraisals, and testing of receivables to estimate the probable percent of recovery in the worst-case scenario, should the company cease operations and have to liquidate. Even if the company has not been asked to provide these reports in good times, expect that the Special Assets credit officers will ask for them, all of which will be at the company’s expense. Prepare your accounting staff for additional reporting to the lender.
• Prepare yourself and top managers to hear terms that may be upsetting, such as GOB (Going-Out-of-Business) analysis, OLV (Orderly Liquidation Value) appraisal, bankruptcy and foreclosure.