5.1.3 Determining the Bank’s Legal Rights and Remedies

Effective from Jan 06 2020 - Jun 30 2020
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The banks having reviewed and understood the borrower’s business plan, but before initiating restructuring negotiations with a borrower, must prepare for these negotiations and have a very clear understanding of its bargaining position from a legal standpoint.
The Workout Unit should perform a thorough review of all documents relating to the borrower, with special emphasis on the loan agreement and the security package that was formalized when the transaction took place. An accurate assessment of the bank's rights will have a critical impact on determining the resolution strategy to be adopted.
The following are general indicators that a Workout Unit could pay attention to when reviewing the documentation:
i.	Whether the parties to the loan were adequately described in the loan documentation;
ii.	Whether all key documents were signed by the duly authorized persons under Saudi governing law;
iii.	Whether the bank is in possession of all original documents;
iv.	Whether the collateral has been duly perfected, including registration at the applicable registry
v.	Whether the loan documentation included non-compliance with certain financial indicators as ‘events of default’, and whether these indicators have been breached;
vi.	Historical financial position, driver of historical underperformance and to what extent this is expected to drive forecast performance:
	a)	Current market challenges and outlook: The Banks should form a view on how this has impacted the borrower’s historically and how is it expected to impact its forecast performance and ability to repay the loan;
	b)	The capabilities of the borrower’s Management team and whether they are capable of turning around the business;
	c)	Strategy and turnaround initiatives: Does the borrower have a clear strategy or plan to turnaround the business? Has this plan been clearly documented and communicated to banks?
	d)	Business plan and financial projections: How is the borrower expected to perform of the medium to long-term? What are the borrower's cash flow projections, which should provide an indication of his loan service capacity going forward? What is the level of sustainable versus unsustainable loan;
	e)	Alignment with credit terms: To what extent are all of the above aligned with existing credit terms and repayment plan;
vii.	Whether the loan documentation included a cross-default clause and whether there are other loans that may be considered breached and/or accelerated as a result of the breach of one single loan;
viii.	Whether there was an obligation on the bank to notify the borrower or potential guarantors of major changes in the documentation or the terms of the loan, like changes in legislation, currency, interest rates, etc.
If the borrower is not fully equipped to provide such information or if the banks would like to independently review such information, they can seek to appoint a financial advisor to perform an independent business review and clarify the above.
Once the Banks have formed a good understanding of the above, it is expected to assist them in identifying sustainable and commercial restructuring options that could align the banks' interest with that of the borrower and maximize recovery. Such options should be continuously evaluated as the WU engage in restructuring discussions and gather further information.