Realizing that they needed help, the Shoulders hired a consultant to identify areas of strength and weakness, and to advise them on ways to improve performance. “We weren’t sticking our heads in the sand,” Bob insists. “Through the summer and fall of 2007 into the first quarter of 2008, we made a lot of progress in changing how the club operated. We brought in new management, and our business lines were profitable.” But, even as it seemed things were turning around, the Shoulders were finding it increasingly difficult to meet their financial obligations. “Our core club was running smoothly,” explains Katherine, “but the debt was a lot of weight for the club to carry when our new programs were still gaining momentum.” All through the dismal winter of 2007, the Shoulders were in continual contact with their lender, the Arkansas National Bank (ANB), about restructuring their loan. “The bank kept telling us that we had a great club and they were working on restructuring our loans,” says Katherine. “‘Just keep things going,’ they reassured, ‘and everything will work out.’”
But the Shoulders were confronting a different reality. “Basically, we wound up funding the club on our own,” says Katherine. “We began to use our own savings to pay these loans, because we believed it was the right thing to do, and because we believed that, if we could just get through this rough patch, we could recoup our personal investment, and wind up with this fantastic new club.” What the Shoulders couldn’t know is that, by fall of 2007, ANB was no longer in control of its own fate and the economy was beginning to nosedive. In late October, the Office of the Comptroller of the Currency (OCC) had required ANB to hire an external loan review consultant because of its concerns about the bank’s asset quality. Over the next six months, the OCC continued to monitor ANB in an attempt to right that ship.
According to an Audit Report of the Office of Inspector General at the Department of the Treasury dated November 25, 2008, the OCC had known about ANB’s problems as early as 2005, but “took no forceful action until 2007,” by which time it was impossible to save the bank. On May 9, 2008—just four months before the collapse of Lehman Brothers would spark financial panic on Wall Street—the OCC closed ANB and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.
SOLUTION REJECTED A winter of discontent gave way to a spring of despair.
The Shoulders were meeting with FDIC representatives twice a week, trying to work out a deal to buy back their loan. “We’d meet with this nice lady from Houston,” Kather- ine remembers, “then walk back into the club, putting on a brave face until we could shut the door to Bob’s office and ask each other: ‘What’s really going to happen?’” The Shoulders were upfront in their dealings with their FDIC representative. After ANB failed, they made
FAC: the memories
an additional loan payment as a sign of good faith. “But we finally had to tell her that we couldn’t make any more loan payments,” acknowledges Katherine. “It was the smartest decision we ever made, but it was a hard one. We really had no incentive to continue making payments.” And so it went, through the summer and into the fall. The Shoulders maintained their positive public image for the benefit of their employees and club, working behind the scenes to hold onto a business that seemed to be slipping away from them. But they wouldn’t give up or give in. “Here we were,” says Katherine, “a business whose bank had just failed, with everything in flux and an economy that’s tanking, and we managed to convince a local bank to loan us enough money to pay off the FDIC. We felt very positive.”
By September, the Shoulders had drafted a finance plan. “We had new equity coming in and a cap-ex program,” recounts Bob. “We were offering 70 cents on the dollar for all of our commercial loans.” The Shoulders’ offer was passed along to the Dallas office of the FDIC, which promptly rejected it, and, just as promptly, put the FAC loan up for public auction. A bid of $3.4 million by SM-WLJ Asset Owner, LLC, of Coral Gables, Florida, was accepted instead. “We’d offered to buy our loan for double what the
FDIC eventually accepted,” says Bob. “It was incredibly frustrating.”
Subcontractors were retained by the FDIC to dispose of ANB’s loan portfolio and hired former bank loan officers to help ANB’s clients restructure their loans. “We worked to reduce the interest rate or forebear the loan,” says one of them, who asked not to be identified. “I knew almost every loan officer, and, of the hundreds and hundreds of loans we worked on, not one of these pro- posals, to my knowledge, was ever approved. I really have no idea why they didn’t approve any short sales or loan restructures—it’s still a mystery to me. They should
ihrsa.org | NOVEMBER 2011 |
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