“I am more concerned with the return of my money than the return on my money,” interestingly was quoted by three powerhouse people of the past (Mark Twain, Will Rogers and John Maynard Keynes – the father of modern day economics). This is so powerful, yet simple, that I wanted to bring it up again as it is a more applicable statement today than ever before.
As I’ve worked and consulted with commercial banks in past recessions, the knee-jerk reaction is usually to litigate first and worry about capital recapture later. This one-way street leads the borrower to seek the protection of the US Bankruptcy Court. As a consequence, massive writeoffs are taken and all parties lose.
Alternatively, I’ve proven time and time again that the best path to a workout is to work with all parties, assessing concepts, business plans, capital stack, supply-demand for products and efficiency of workflow. The “project correction” can be (1) charged off, (2) the new business plan executed so that the endeavor is now profitable, (3) the charged off amount can now be amortized over the new project earnings, and finally, (4) recorded as capital gains, thus monetizing the tax benefit along with the capital recapture.
Not possible? Case Study: One of our bank clients was upside down by an inordinant amount. Why not buy the land next door with seller-held paper, double the size of the project and amortize the overage – it worked (Ocala, Florida). Whether Real Estate, Industrial or Energy, GPA Capital’s Elastic Amortization Method.
Feel free to email me your scenario…email@example.com