1 / 11

Webster Financial Corporation

Webster Financial Corporation. Commercial Real Estate “The End of Extend and Pretend” March 2012. How Did We Get Here?. Déjà Vu All Over Again Too much capital – debt and equity Aggressive deal terms – free options Overpriced values. Industry Dynamics. 1990s. 2008+.

Télécharger la présentation

Webster Financial Corporation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.


Presentation Transcript

  1. Webster Financial Corporation Commercial Real Estate “The End of Extend and Pretend” March 2012

  2. How Did We Get Here? Déjà Vu All Over Again • Too much capital – debt and equity • Aggressive deal terms – free options • Overpriced values

  3. Industry Dynamics 1990s 2008+ • Tax code change (1986) • Overbuilding • Aggressive underwriting (S&Ls) • Recession – unemployment peaks at 8.2% • Office overbuilt • Cap rate paradigm shift • Too much capital / leverage • Aggressive underwriting (CMBS) • Severe recession – unemployment at 9+% • Consumer impact on retail supply

  4. Regulator’s / Lender’s Approach 1990s 2008+ • Hands were tied • Aggressive Regulatory environment; came in with biased mindset from experiences in Texas • Regulators dictating values; performing / non-performing • More adversarial with Borrowers • More flexibility • Regulators applying lessons learned from 1990s; will not dictate values • Tightening underwriting standards • Increasing pricing; risk premium back in • Refinancing maturing loans; no alternative source of capital • More collegial with Borrowers

  5. Portfolio Realities • Falling market values • Stressed cash flows with near term lease rollovers and declining rents • Increasing covenant defaults • Near term maturities • Increasing payment defaults, sponsor liquidity issues • Negative risk rating migration and capital issues

  6. Portfolio Strategies • Early identification and resolution of the problems • Timely risk rating changes and aggressive action is critical to avoid regulatory scrutiny • Favorable regulatory guidance, work with sponsors wherever possible • Negotiate permanent solutions, do not “kick the can”

  7. Loan Decision Tree Loan Work with Sponsor Don’t Work with Sponsor Note Sale to 3rd Party Foreclosure A / B Structure Renewal / Mod / Extension Bankruptcy REO • Retain B note or equity kicker for future upside • Put A note back as performing loan • Retain loan • Higher LTV • Control economics • Increased income from higher rate Discounted Payoff • Removal of substandard / non-accrual loans • Fix / lock in charges

  8. Renewal / Modification LTV @ Maturity Problem Solution: • $500,000 pay down • Term: 3 year extension • Cash flow sweep to fund T/I escrow reserve • $125,000 interest reserve (add’l collateral) • LTV: 85% • DSCR: 1.20X • TDR Status • Loan: $10 million • Maturity: 11/01/11 • Occupancy: 85% • LTV: 90% • DSCR: 1.10X

  9. A/B Note Structure Problem Solution: “A” Note - $7.5 million • LTV approx 100% • DSCR – 1.10X • Cash flow sweep • Performing status • TDR Status “B” Note - $2.5 million • $2.5 million charge off (not forgiven) • Accruing at 1% rate • Loan: $10 million • Occupancy: 70% • LTV: above 130% • DSCR: Below 1.0X

  10. Conundrum Are TDRs a true measure of a bank’s future defaults? • TDR problems and implications: - Classification inconsistency across the industry - Went from simple accounting classification to 1.) a metric used by Wall Street to access future defaults and 2.) incremental FDIC requirements given classified status • Due to capital and valuation implications with TDR labels, workout structures may change to include: - Larger charge offs on A/B structures - No perceived concessions – need for “market” transaction

  11. Scorecard • Regulatory / lender approach definitely a plus • Banks able to resolve liquidity issues • Banks raised or shored up their capital positions • Minimized charge offs and costs • Pressure today for banks to clean up their balance sheets • Myth vs. reality – are TDRs the next shoe to drop?

More Related