Webinar 04.13.20
Real Assets Roundup – Real Estate
12:30PM - 1:30PM EDT
Webinar Series
Alert
Alert
04.08.20
Many industries, including the real estate, hotel, airline, retail, restaurant and oil & gas industries have been especially hard hit (some indeed devastated) by the coronavirus pandemic, the ensuing quarantines and social distancing. Projects that were already troubled may be “pushed to the edge”—many real assets and borrowers will need “breathing room” so that they can withstand this dramatic downturn and potentially be in a position to “restart” when the economy “restarts.”
For many real estate borrowers and lenders, it is time to consider forbearance arrangements and loan restructurings. Even if April rents were paid, owners and lenders need to prepare for potentially lengthy disruptions. Any such discussions between borrowers and lenders should only occur after the parties have entered into a pre-negotiation agreement (PNA). Making promises, or making requests and explaining the need for forbearance, without a PNA can expose either party to claims. The PNA allows borrowers and lenders to freely engage in discussions (and not be bound until a formal agreement is executed). PNAs are critical table-setting exercises that help negotiations get underway.
Although the exact details of a PNA will vary from deal to deal, a well-negotiated PNA will need at a minimum to address: (i) the non-binding nature and confidentiality of any discussions that may occur; (ii) the fact that no party is bound until a final fully executed restructuring agreement is executed by the parties, (iii) the fact that discussions may be terminated at any time (for any reason or no reason) and (iv) the fact that discussions are inadmissible in a court proceeding. Basically, the PNA allows for discussions to be “neutral” and without prejudice to or waiver of any party’s rights—so the PNA maintains the status quo.
More specifically:
PNAs can contain traps (for both borrowers and lenders) and need to be carefully negotiated. Their role and importance cannot be understated. Do not make promises or commitments, and do not ask for forbearance of modifications, without a PNA in hand.
Pillsbury’s experienced crisis management professionals are closely monitoring the global threat of COVID-19, drawing on the firm’s capabilities in supply chain management, insurance law, cybersecurity, employment law, corporate law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center.
Caroline Harcourt is a partner and Jacob Axelrod is a senior law clerk in Pillsbury’s Real Estate practice.