Stressed Accounts: Are we in or are we out with this Borrower?

Transcription

1 Stressed Accounts: Are we in or are we out with this Borrower? Tom Van Buskirk Senior Special Accounts Loan Officer Farm Credit Mid-America Emily Branstetter Pike Special Accounts Loan Officer Farm Credit Mid-America Lindsey B. Moore Senior Special Accounts Loan Officer Farm Credit Mid-America

2 What is the Function of the Special Accounts Unit at Farm Credit Mid-America? The Special Accounts Unit: Administers FCMA s Distressed Loan Portfolio Works with customers to resolve financial issues Limits losses for FCMA through restructuring of loans Finds solutions that work for both customers and FCMA Handles all litigation for FCMA loans (mechanic s liens, estates, bankruptcies, foreclosures, etc.) Risk management for FCMA

3 Distressed Loan is defined by FCA is a loan that the borrower does not have the financial capacity to pay according to its terms.

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5 Hog Farmer Case Study

6 Multiple Lenders Credit Cards Increased Supplier Debt Frozen Operating Debt

7 Red Flags vs Strengths

8 Communication is Key Expectations of both parties Detailed plan for liquidation Starts with plan from Borrower

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10 Customer transferred to SAU Joint meeting with customer, SAU loan officer and previous loan officer Set plan required for liquidation Borrower refinanced

11 The Changing Lending Environment

12 Special Accounts Farm Credit Mid-America What Are We Concerned About?

13 RLOC Renewals Maxed Out/Stale RLOCs Loans with PD of 9, 10 or 11 Many transfers are due to a RLOC renewal denial Collateral sold and proceeds not paid to FCMA

14 Lack of Meaningful Controls Crop security with no Buyer notification and no hard collateral Loans that have not revolved for many years Loan structure does not match the customer s income stream Loan funds used for the wrong purpose Use of funds by non-obligors

15 Incomplete information Lack of Borrower Plan for Correction Incomplete Financial information Open accounts - inputs and deferred seed accts. Unknown size and scale Asset ownership issues, i.e. entities, trusts, life estates

16 The White Paper Farm Credit Mid-America

17 Lending to production agricultural is our core mission. We will be: Dependable and Accountable Proactive in managing our customers and portfolio risk Thoughtful and balanced in our approach based on a long-term perspective Make sound credit decisions without fear of being criticized

18 THE WHYS From 2009 through 2014, we saw historically high profit margins for most grain producers Historically low interest rates Tremendous expansion of farm balance sheets Resulting in significantly higher fixed asset and cost structures compared to 15 years ago

19 What Will FCMA Do? FCMA wants to be recognized as COURAGEOUS IN DIFFICULT TIMES Depending on the Customer s Willingness to Adjust. FCMA Will Not Abandon Our Core Credit Principles The importance of Risk Bearing Capacity of our customers

20 We will: Seek to understand the customers plan under the current industry cycle Identify Risk and Communicate this to our customers Maintain a realistic long-term outlook Be accountable to our membership, their capital, the regulators, our lending source and the industry

21 We will Not: Panic or withdraw from the market Commit to save every operation Ignore good credit judgments Take undue risk and be responsible for all the needed adjustments Customers must accept both the RISK & Responsibility to work through their needed adjustments

22 Effective Communication

23 Human Level (to fulfill current human needs) Business Level (to accomplish external objectives)

24 Segue into the business level by: Asking a Question. Giving Information. Offering Options.

25 Be Prepared for the Meeting with the Customer Prior to the meeting, prepare a list of objectives and discussion topics. Rehearse what you will say. Schedule the meeting to involve all liable parties. Keep your voice even and at a normal tone. Be aware of your body language and what it is saying to the customer.

26 Tips for Communicating Effectively with Customers Focus on the situation, issue or behavior, not on the person Maintain self-confidence and self-esteem of others Maintain constructive relationships Take initiative to make things better Lead by example Think beyond the moment

27 Forward Thinking! Encourage the customer to seek out advice from professionals. Establish clear and concise parameters for continued lending. Document the lender requirements. Require operational changes early in a deteriorating credit, while the customer has a chance to salvage all or part of the operation s equity. Carefully discuss the customer s repayment capacity including the different types of demands on it and the customer s financial trend.

28 What not to do Don t give an indication that delaying is acceptable (either by saying, don t worry about it or by saying nothing. Don t repeat ineffective approaches. If a customer fails to respond to suggestions don t keep asking him to think about his problem, to put a plan together to discuss it with his family or his accountant or his other creditors. Don t threaten the customer with drastic action (foreclosure, for example) only because you re exasperated. Use such statements only when all else has failed and your management is prepared to follow through.

29 Distressed Loan Procedures What to do.. Ask the customer very detailed questions. Set a time frame or deadline. Establish tighter controls. Revise plan and agreements so that the actions defined are more concrete. Outline the alternatives open to FCMA should these deadlines, controls and plans be disregarded Encourage family discussions that focus on making corrective efforts more concerted and timely.

30 Cash Grain Farmer Case Study

31 Excessive IT Debt Blaming outside forces for problems Unfamiliarity with operation s break-even Frozen Operating Debt

32 Red Flags vs Strengths

33 Communication is Key Set expectations regarding future lending Prepare for frustrations and allow customers time to work through it

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35 Identified as a survivor Agreed to sell real estate to reduce debt Helped them to secure operating funds from other lenders Termed out operating after sale of real estate

36 Questions?

37 Stressed Accounts: Are we in or are we out with this Borrower? Tom Van Buskirk Emily Branstetter Pike Lindsey B. Moore