Enforcement: It Need Not Be A Lender’s Worst Nightmare

by Geoffrey D. Ferrer

It is a lender’s worst nightmare to learn that a borrower is in trouble and the lender’s loan is, as a result, at risk. Yet, with proper planning – which begins even before a loan is booked – the probability of the nightmare becoming reality can be substantially reduced, though not totally eliminated. Enforcement planning, to be effective, must be put into place during the due diligence phase of a transaction and must be continued throughout the transaction’s life. It is impossible in this short article to provide a detailed road map of the subtleties and nuances of maritime enforcements and workouts, yet it is possible to provide some of the basic building blocks from which to construct an effective enforcement strategy.

Pre-Closing Activities
If a lender waits to begin its enforcement planning until it receives word that one of its borrower’s insurances is about to be canceled because of non-payment of premiums or that a borrower’s vessel, over which the lender holds a ship mortgage as security, is about to be arrested because of mounting trade debt, it may be too late. Therefore, a lender should do itself a favor and begin its enforcement planning while undertaking due diligence with respect to a loan to a new or existing client.

This due diligence should include a thorough review of the prospective borrower’s and any accommodation parties’ financial statements and records, and confirmation that their financial picture is accurately presented. If a lender needs additional information, it should speak up immediately. A lender’s due diligence review should also focus on any additional assets of the borrower which may be available should the lender’s primary security – the vessel – be worth less in a forced sale than originally anticipated.

This is only an excerpt of Enforcement: It Need Not Be A Lender’s Worst Nightmare

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