On July 15th, 2020 David DeMuth Co-Founder & Senior Managing Director of CFO Consulting Partners led a discussion regarding best practices for financial forecasting and modeling post COVID 19 for 2020 and 2021. Michael Plunkett of Plunkett Law Group led a discussion regarding key terms and considerations of investment banking engagement letters from a client perspective. Steve Economou provided an investment banking perspective to the discussion.
On June 25th CFO Consulting Partners’ Director Chip Steppacher and Managing Director Eric Segal were hosted by Pam Perdue on a webinar focused on restoring Bank financial and operational performance in uncertain times. Follow this link to view a recording of the event:
Continuity ( https://www.continuity.net/ ) is a provider of regulatory technology (RegTech) solutions that automate risk and compliance management for the financial services industry.
On June 18th, 2020 CFO Consulting Partners Director Larry Davis and Managing Director Eric Segal presented a webinar with Northern New Jersey Community Bankers on Leadership Opportunities Through The COVID-19 pandemic. Crown Bank Vice-Chairman Paul Fitzgerald moderated the discussion and Jill Freeman of Employment Practices Group, LLC ( https://www.epgstrategy.com/ ) provided thoughts and advice on Organizational and Leadership Opportunities.
Click here for the Webinar Presentation
Jeff Appleman of CFO Consulting Partners joins the New York Business Brokerage Group Webinar Series on Middle Market Mergers & Acquisitions.
New York is at the epicenter of the Covid-19 Pandemic in the U.S.. Across the state, residents are sheltering-in-place and dealing with the health and finance issues posed by the pandemic. Business owners, meanwhile, continue to wrestle with the devastating economic consequences of the pandemic. Many have spent time applying for relief from the government, cutting staff and expenses, and assessing how to ensure the survival of their companies.
This has had a profound impact on mergers and acquisitions activity, which has taken a backseat to other, more pressing matters. As the pandemic continues, however, middle market businesses may eventually have to buy, sell, or merge with other businesses to preserve the value of their companies.
As the crisis continues, businesses may need additional strategies to preserve the value of their firms. One such strategy is to sell or merge their business. But that is not easy to do in the best of circumstances, much less during a crisis.
We will discuss this in our upcoming webinar:
Exit Planning Primer: Options on exiting your business on your terms.
Please join Kyle Griffith, CBI Managing Partner of The NYBB Group as he moderates a discussion for Business Owners on Exit Planning. Kyle and other industry advisory leaders will be providing information on how to exit a business; which options are available and how to prepare.
Joseph Milizio, Esq. – Managing Partner of Vishnick McGovern Milizio LLP
Austin Bransgrove, RICP®, CExP™, Managing Associate, Wealth Advisory Group LLC
Stephen A. White, CVA, Founder and Managing Partner of Onyx Partners Group
Jeffrey Appleman, CPA of CFO Consulting Partner
Subchapter V of the Bankruptcy Code and How This Can Help Small Businesses
In this time of uncertainty, companies must plan for every conceivable outcome. Small companies in particular are especially vulnerable and must assess all tools at their disposal in order to survive.
The purpose of this newsletter is to highlight a new provision of the Bankruptcy Code which can be a lifeline to small businesses. We intend to provide you with an overview of the features of the newly enacted Subchapter V of the Bankruptcy Code so you can understand this alternative as a means to survive the current crisis. The information presented below is for informational purposes only and should not be considered legal advice or opinion, which should only be sought from an attorney.
Subchapter V is part of the federal Bankruptcy Code that came about from a new law called the Small Business Reorganization Act of 2019 on February 19, 2020. Subchapter V is aimed at small business corporate and individual debtors, and it is intended at reducing the complexities of Chapter 11 by increasing efficiency, lowering costs and easing the plan confirmation process.
Initially, Subchapter V was limited to a person or entity with total debt of less than $2,725,625. The CARES Act raised this amount to $7.5 million; this higher amount will only remain in effect until one year after the effective date of the CARES Act, i.e. March 27, 2021. The one exclusion to Subchapter V is single asset real estate entities.
The advantage of a Subchapter V filing over a Chapter 11 filing includes the following:
There are no fees, apart from an initial filing fee. Also, administrative expenses may be paid over the life of the plan (as opposed to the date of the plan confirmation as with Chapter 11 filings).
Filing requirements are the business’ most recent balance sheet, statement of operations, statement of cash flow and tax returns, or a sworn statement that such documents do not exist.
Subchapter V has no creditor committee, unless the court orders otherwise.
The petitioner will submit the plan to the court and, if it meets certain requirements, it will be accepted by the Court.
Under a typical Subchapter V filing, the chronology of events is as follows:
A status conference will be held in bankruptcy court within 60 days of filing;
The debtor must file a report detailing efforts to reach a consensual plan of reorganization no later than 14 days prior to this conference, and;
The plan must be submitted for approval within 90 days. Extensions may be granted where there are circumstances for which the debtor cannot be held accountable.
The plan will generally be confirmed as long as all disposable income for the ensuing 3-5 years will be used to repay creditors.
If creditors can’t agree on the petitioner’s proposed plan, the Bankruptcy Court Judge may be asked to order the plan approved (a “cram down”). The success of the proposed plan would need to be demonstrated to be more attractive to unsecured creditors than a conversion to a Chapter 7 liquidation plan, which is usually very easy to be made.
A small business owner may continue to operate post filing as a debtor-in-possession and must continue to file the schedules and statements required of all debtors under the applicable section of the Bankruptcy Code. However, the court can strip a small business debtor of its debtor-in-possession powers for cause such as fraud, dishonesty, incompetence or gross mismanagement, either before or after the bankruptcy case or for failure to perform the obligations specified under a confirmed plan. In such an event, a Small Business Trustee would take over the operation of the business.
In summary, the advantages of Subchapter V over a Chapter 11 filing are costs, ease of filing requirements, ability of the owner to prepare the reorganization plan without having the involvement of a creditor committee and relative ease of confirmation by the Court as long as certain hurdles are met.
For business owners who are undergoing challenges, we hope that your firm will be able to successfully withstand the current crisis and be able to return to normalcy in the near future, and that you will not need to consider Subchapter V. However, we encourage you to consider this alternative if it can result in your firm’s survival. CFO Consulting Partners can assist you in seeking legal advice and assistance from our broad network of contacts in the legal field.
Finally, we wish the best to you and your loved ones for safety and continued good health.
The content of this newsletter is meant for general information purposes and is not to be considered legal advice or opinion. As with any bankruptcy or restructuring filing, you need to consult with an attorney to cover your own unique situation and circumstances.
By Mark Sloan, Director, CFO Consulting Partners, email@example.com
David DeMuth, Sr. Managing Director, CFO Consulting Partners, firstname.lastname@example.org
Chapin Hill Advisors’ panel of experts shares insights on what deal flow is taking place, what is stalled and what opportunities are out there. Listen to our experts: M&A attorney, Dennis O’Rourke w/ Moritt Hock & Hamroff LLP; Ron Lehman, MD Bruderman Brothers; Keith Dee, President Osage Advisors & Allan Tepper, co-founder CFO Consulting Partners take us through their views on the current state of affairs. What deals are going forward, which ones are in triage; are PE firms going to add to their portfolios and more. Moderated by Kathy Boyle. The link for the video can be found here.
- Clearly define goals and project plans, and monitor and report on status. These disciplines are more important now than ever before to enable processes to run smoothly and avoid fire drills that are even more challenging in a remote environment.
- Communicate more than “normal” so that everyone can become comfortable with remote work and interactions.
- Ensure that the technology and information security requirements are in place so that your team can operate effectively on a remote basis
- Use detailed project plans, checklists, timelines and other mechanisms to define project requirements, clarify roles within the team, identify dependencies, and communicate status. Monthly and quarterly closing checklists and similar outlines are extremely helpful for all required deliverables: Board and senior management reports, press releases, SEC reporting, etc.
- Make resources available to all who need them in real time.
- Develop a file storage plan and use it consistently while maintaining appropriate access security over those files. Typically, companies will create a central folder for each period’s financial reports.
- Finished work products should be stored centrally and shared according to agreed-upon nomenclature so that team members can locate and process as needed.
- One individual should own a document and be the gatekeeper for changes proposed by internal preparers, executive management, external legal and accounting advisors, investor relations etc.
- The gatekeeper should maintain version control so that reviewers can easily identify updates to the documents. “Track Changes” and blacklined documents help focus reviewers’ efforts.
- Establish deadlines for comments and limit the number of drafts to minimize time spent processing successive versions. Relevant comments will always need to be considered but avoid excessive wordsmithing once you have a solid document.
What We Did:
How We did It:
The link to view the webinar, Business in the Time of the Coronavirus can be found here.
Information on the event can be seen below:
How can your business adapt to the new normal and plan for an uncertain future? How can the provisions of the CARES Act and other related stimulus help your business now? More importantly, how do they actually work in practice?
Our panel of experts will answer your questions across a range of disciplines.
You also have the opportunity to put forward 3 questions in advance and we will ensure they’re answered on the day. You will be asked to submit questions when registering.
Mark Taylor, Vistage: Leadership
Our Panel of Experts:
Craig Teahen, Freeman Clarke: Tech & Digital
David DeMuth – CFO Consulting Partners: Finance
Allan Tepper, CFO Consulting Partners: Finance
Jason Rimland – Tannenbaum Helpern Syracuse & Hirschtritt LLP: Legal & Benefits
Thinking Ahead – Accounting for Loan Losses During and After Covid-19
One of the many challenges posed by the current health crisis is the need for lenders to reassess their borrowers’ ability to repay their loans. While it may seem unfair, or even unseemly, to have to address this issue at this time, financial institutions will need to do exactly that in closing their books and reporting on the First Quarter of 2020 in their regulatory reports and (for SEC registrants) Forms 10-Q.
The accounting approach most community institutions are following, and on which we will focus here, is the traditional, probable incurred loss model. This model requires institutions to provide for losses that are probable to have been incurred under the GAAP literature in Accounting Standards Codification (ASC) 450, Contingencies, and 310, Receivables. In practice, this usually involves a modeled component, based on historical write-offs over a look-back period, and a qualitative component, based on the current state and trend of economic and other factors affecting the portfolio. A good summary of the factors to be considered in this qualitative analysis are the nine points summarized in an Interagency Policy Statement issued in 2006 by federal banking agencies, which can be found at this link: https://www.occ.gov/news-issuances/bulletins/2006/bulletin-2006-47a.pdf
Generally, increased loss provisions are expected but likely too few facts are available to make specific loss assumptions. Measuring specific incurred losses at the end of Q1 will be difficult and most likely will be addressed through additional qualitative factors. Reserve assumptions for those credits already under analysis should be reevaluated and likely dealt with across product and delinquency categories.
Following are the nine points from the Policy Statement, in italics, followed in each case by our comments:
1. Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses. This would include loan forbearance and other regulatory relief measures enacted to assist with resolution of the crisis: https://www.fdic.gov/news/news/press/2020/pr20038a.pdf
2. Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments. The effects of the current health crisis will be pervasive, as covered in the other points.
3. Changes in the nature and volume of the portfolio and in the terms of loans. Institutions will need to address any shifts in new lending – in some portfolio segments, new production will have stopped, and thus not be available to offset increased non-performing loans and normal amortization within those segments. Thus, looking forward and doing the math, loss rates will increase within these portfolio segments.
4. Changes in the experience, ability, and depth of lending management and other relevant staff. Will there be sufficient staff available to effectively manage the portfolio? Will remote collection efforts be as effective as prior techniques?
5. Changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans. A sharp increase in delinquencies can be expected, albeit delayed by the TDR forbearance mentioned above. The ultimate losses may be mitigated by any government guarantees that are available, as well as borrowers’ ability to access business interruption insurance.
6. Changes in the quality of the institution’s loan review system.
Improvements that strengthen the process of reviewing loans could be a mitigating factor. If however, the loan review process weakens, either because of staff illness or other limitations, this factor may be another reason to strengthen reserves.
7. Changes in the value of underlying collateral for collateral-dependent loans. Real estate loans will be a challenging area, as the impact of current developments on the commercial and residential real estate markets will take some time to shake out, however declines in market values seem likely.
8. The existence and effect of any concentrations of credit, and changes in the level of such concentrations. The effect of concentrations can become more severe as conditions in certain industry sectors worsen, and the relative size of concentrations can become larger as healthier loans run off in a low origination environment.
9. The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio. These factors include forbearance that is enabled by legislation e.g., restrictions on foreclosure that lead to increased losses from deterioration in the physical condition of properties and/or in the property market.
Your portfolio consists of two types of borrowers: healthy and current borrowers who may be negatively affected by the duration and severity of the current crisis; and those already exhibiting financial stress (past due and delinquent accounts, businesses already under severe attack from a variety of sources including the lack of a viable internet strategy, lower cost of foreign competition, and many others) for which the current crisis may finalize their situation. Both may benefit from the governmental assistance and forbearance programs, however the exclusion from TDR accounting applies only to the former borrowers. You should track and maintain records of your borrowers’ status throughout the deferment and modification process in order to demonstrate those which are not TDRs.
We have discussed the challenge of first quarter reserving with senior representatives from several large accounting firms, and the following pieces of practical advice emerged:
* Now is not too soon to begin discussing reserving considerations with professional service providers, including auditors and consultants.
* Most institutions are targeting timely filings of their First Quarter reports, notwithstanding the grace periods being offered by regulators, including the FDIC and SEC. See the announcement of the grace periods at:
* Auditors, regulators, analysts and other interested parties will be looking for a strengthening of the environmental/qualitative reserve, along with supporting evidence that identifies the impact of current events and links to any adjustments.
* Whatever process is followed, it will be necessary to step back and consider whether the result makes sense.
* Whatever answer is arrived at for First Quarter reporting, further adjustments will undoubtedly be required in the Second and Third Quarters as more information becomes available.
We are familiar with these issues and accustomed to working remotely. Please let us know if we can help in any way.
Note on CECL: Institutions that have adopted the new Current Expected Credit Loss Model in the First Quarter will have similar considerations, but with the additional challenge of adopting the new model. They should also consider the possible impact of the CARES Act on timing of adoption, and related regulatory actions, including the Federal Institutions Letter on the interaction between timing of adoption and capital relief:
Larry Davis – email@example.com
Paul Karr – firstname.lastname@example.org
Eric Segal – email@example.com