JULY 25, 2022 – Last week an insurance agent in NJ informed me by email that a recent premium refund I’d received had been overpaid. The minimum earned premium hadn’t been taken into account, and the agent’s firm was on the hook for the overpayment. He asked that I call him. I phoned immediately. When he described the error and that he was at my mercy to return the overage (the amount was more than a few bucks but not enough to sue over; we had no continuing business relationship, so the agent had nothing to offset against and no other leverage), I told him not to worry. His predicament reminded me of a similar situation I’d experienced decades ago but involving lots more money.
After hearing my story, he recited the adage, “What goes around, comes around.”
“Absolutely it does,” I said.
Here, then, was my story . . .
I was 30, a lawyer working as an assistant vice president in “Real Estate Special Assets” at a large, Twin Cities-based bank. The title of our department was a euphemism for “commercial real estate loans in default.” We were an odd lot of lawyers, accountants, and ornery bankers chasing after “deadbeats,” as some of our crew insisted on calling defaulted borrowers. I was new to the game, and I observed with fascination the different styles that people brought to the department.
The guy I admired most was an impressive veteran named Bill McRostie—nicknamed, McCrusty, because tons of experience (he’d been recalled from retirement) and a lifetime of chain-smoking had made him so. (This two-par series will be followed by a post dedicated to Bill, who had a profound influence on the way I approached my job as a workout banker and later, as a practicing attorney.)
Most of my colleagues weren’t half as old or wise as Bill. They were tough talking “table bangers” and prided themselves in making life miserable for “deadbeats.”
Me? It wasn’t my style. When I was assigned a troubled loan, I wanted to learn as much as possible about the borrower—what made the person tick—to develop a better-informed workout strategy. The best approach, I figured, was to listen, not shout and bang the table. Our department’s portfolio included lots of loans, collateral, and borrowers that were spread across the country. One of my deals involved a group of real estate investors in Nashville. Their sprawling apartment project, financed with revenue bonds, had gone belly up. Our bank held the bonds—and a million-dollar letter of credit as supplemental collateral in addition to a mortgage on the project itself. A “letter of credit” is a bank-issued instrument that can be “drawn” upon by the holder. It’s essentially a bank’s guaranty of a third party’s obligation.
The group was trying desperately to refinance before we drew on the letter of credit and foreclosed the mortgage, but the numbers weren’t looking good. (To a point, our bank’s interests were aligned with the group’s efforts, since the re-fi would produce better results than foreclosure and cash from the letter of credit). If we (the bank) ran out of patience, we’d need to submit a draw on the letter of credit, and the investor group would be “on the hook” to the issuing bank. (Cont.)
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© 2022 by Eric Nilsson
