What Happens When a Loan Becomes Distressed?
Financial distress has always been a part of borrowing. In private credit investing, avoiding losses is crucial. Planning for potential downsides and having the skills to manage complex situations is essential for protecting investor capital and maintaining strong returns.
What is a Workout?
A workout involves restructuring loan terms when a borrower faces financial difficulties and is unable to meet the original terms of the loan agreement. The goal is to avoid enforcement or bankruptcy by finding a mutually agreeable solution, allowing the borrower to continue making payments under adjusted terms and helping the lender preserve value.
Unique Situations
Each workout is unique, requiring tailored solutions. Amendments may include extending loan maturity, adjusting interest rates, temporary payment holidays, or converting debt to equity. These amendments may also be required to support borrowers in growth phases, enhancing profitability and collateral value, rather than being limited to distress.
Keyview’s Approach
At Keyview, we focus on the strength of the protections within the loan agreement and conservative future planning. Effective workout management requires early detection, constructive dialogue, thorough legal and financial assessments, and transparent investor communication.
Navigating borrower defaults highlights the expertise and strategic thinking essential in private credit investing. By implementing best practices and proactive management, fund managers can protect investor capital and achieve the best possible outcomes for both the borrower and the fund.
