Hilco: Strategies for Lenders with Retail Market Portfolio Exposure

Hilco Global has issued a series of short- and mid-term strategic recommendations to assist lenders with current portfolio exposure in the retail market to take appropriate and informed action during the near-term fallout of the current COVID-19 pandemic.

Titled simply, “We are Here to Help”, and co-authored by members of the Hilco Global Retail Leadership Team, the recommendations provide perspective on the current crisis by examining and comparing relevant aspects from both the 9/11 and 2008 financial crisis periods.

Noting that the fallout from the current pandemic during this period in terms of consumer behavior and recovery values is likely to be markedly different from either of those previous incidents, the guidance provided to lenders in these recommendations is broken into two distinct periods for 2020: March-April and May-October, with detailed actions outlined for each.

“While It goes without saying that this is an unprecedented period of uncertainty for businesses, financial institutions and families around the world,” said Jeffery B. Hecktman – CEO of Hilco Global, “because our global team has worked through numerous dramatic economic fluctuations for almost four decades, we are well-equipped with data, facts and deep experience to help lenders with retail exposure make the strategically sound decisions that will be needed during this time.”

Through the Month of April 2020 Hilco Recommends That Lenders:

  • Consider delaying collateral updates on existing appraisals until retail reopens. We advise this because the period during which retail may be closed is uncertain. Assess each loan on a case by case basis as not every retailer is created equal; we are happy to give you our assessment of any situation and complete collateral updates to suit your timing requirements.
  • Consider the best way to protect your collateral, but try to get something from your borrowers in return for any accommodation you provide. Under these circumstances, information may be paramount to protecting your collateral.
  • Advise borrowers to update employee lists and validate current contact information.
  • Ensure that borrowers have identified key personnel needed to maintain operations, especially e-comm staff.
  • Request your borrower work to provide separate reports for their e-comm business from both a management and finance perspective as this may become the most viable aspect of the business once operations resume.
  • Make sure your borrowers are acting appropriately vis a vis their vendors and suppliers and not disproportionately asking for relief from you.
  • Require delivery of these as part of any forbearance or other waiver or in consideration for any over-advances or protective loan.

Consider enforcement actions only as a last resort.

  • Remain cognizant of the fact that it is very difficult to provide the impact on values without understanding the circumstances of each borrower. For example:
  • Grocery would not have the same negative trend that fast fashion might.
  • Supply chain and other unique factors will have an impact.

Additional Recommendations for Preserving Short Term Value:

  • Consider each asset class separately.
  • Even if you don’t have a current lien on certain asset classes, you may be able to get one as part of a forbearance or as part of a DIP. Don’t be afraid of providing a DIP loan to protect your collateral and position. We can assist you in assessing the pros and cons.
  • Make certain that proper assets, operations, and other documentation are preserved.
  • Be diligent in ensuring that critical personnel and “tribal knowledge” are preserved.

To obtain a copy of the full recommendations contact Gary Epstein, Chief Marketing Officer at [email protected].

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Terry Mulreany
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