JULY 26, 2022 – (Cont.) In the protracted process, I’d developed a good rapport with the lead investor and spokesman for the group (although I was a lawyer, I was working in my capacity as a banker; ethically, I could deal directly with the investor, while the bank’s outside attorney communicated with the borrower’s lawyer). I’d sized him up as honest but under water financially. All the “tough talk” and “table banging” in the world wouldn’t improve the value of the collateral or the investors’ trashed-out balance sheets—all lopsided with troubled real estate. I figured the best strategy was to try to restructure the bonds to give the real estate market time to recover. In this respect, my contact proved very cooperative. His big “ask” was for me to defer drawing on the letter of credit so his group could negotiate a take-out loan with the issuing bank. I agreed that as long as he demonstrated progress and gave me daily updates, I’d recommend to our credit committee that his request be granted. It was.
Weeks passed. Then one Monday morning I realized that the letter of credit had expired the previous Friday. A million bucks—into thin air: I’d inadvertently handed the Nashville real estate men a huge amount of leverage over the bank.
It seemed totally lame to blame our (lame) internal operations unit that was supposed to track such things and notify us when any significant deadline was approaching. I knew it was as much my fault as it was a systems failure. I also knew that losing collateral worth $1 million was grounds for losing my job and reputation. The table-bangers in our group would laugh me all the way to my employment gallows.
The first thing I did was tell Bill McCrusty. He wasn’t my boss, but he was about my dad’s age, he liked me, and most important, everyone at the bank treated him as God. If I could keep Bill on my side, I might have a chance, it seemed, of not being hanged in humiliation in the bank lobby. As I’d predicted, Bill was understanding—and supportive. Most important, he advised me not to panic.
I called my borrower in Nashville. The conversation was close to this:
“Good morning, Jim Fontaine.”
“Hi, Jim,”
“Hi, Eric. Aren’t we on for three this afternoon? What’s up?”
“Jim, the L/C [short-hand for “letter of credit”] expired—LAST FRIDAY!” Despite McCrusty’s advice, I was unable to be cool about it. “You know what that means,” I said.
“I thought it was the end of the month. You sure?”
“I’m sure. I’m also sure, Jim, that my ass is gonna be instant grass when my boss finds out.”
“You haven’t told him yet?”
“No. I wanted to call you first, Jim, to see what you can do to prevent my ass from becoming instant grass.”
“You know what?” Jim said in his Tennessee walking drawl.
“What?”
“In this deal you’ve gone to bat for me. So now I’m gonna go to bat for you. As soon as I get off the phone here, I’m gonna call Bob [another key investor], who’s got the connections at the L/C bank. He owes me a favor. He’ll get a replacement L/C. Don’t worry, Eric—what goes around, comes around.”
That afternoon, Jim called me back with the good news: the letter of credit would be replaced and in my hands by the next afternoon. Jim was true to his word.
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© 2022 by Eric Nilsson
