Search
 

Structured Finance Negotiations, “Bad Boy” Carve-Outs

LOS ANGELES-Lenders, borrowers and guarantors remain sensitive to the potential risk of future case law and legislation, says Michael C. Polentz of Manatt, Phelps & Phillips.

By Michael C. Polentz, Co-Chair of the Real Estate & Land Use practice at law firm Manatt, Phelps & Phillips, LLP | Updated on February 27, 2013

(Save the date: RealShare L.A.comes to the Hyatt Regency Century Plaza in Los Angeles, CA on March 27, 2013)

LOS ANGELES-Hypothetical: Borrower secures a non-recourse loan to acquire a commercial office building and concurrently leases it to a cloud based internet start-up company. The loan is secured only by the real property but is subject to certain “bad boy” exceptions for borrower misconduct (including a stipulated “bad boy” act for the termination of the lease without lender consent). Borrower’s principal enters into a full recourse “bad boy” guaranty. Two years into the loan, the tenant goes out of business, ceases paying rent and abandons the property. Borrower subsequently defaults on the loan, files for bankruptcy and assumes that its losses are limited to the lender foreclosing on the property. The lender, however, disagrees, forecloses on the property and sues the guarantor for the deficiency balance.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2024 ALM Global, LLC. All Rights Reserved.