Devised a Flexible and Agile Solution for a CLO Investor to Cure a Resort Hotel Default in a CLO Fund

An award-winning hotel and spa was a top attraction for resort-goers – until the COVID-19 pandemic hit. The luxury property -- with more than 150 rooms, several acclaimed restaurants, a renowned spa, and nearly 8,000 square feet of meeting space -- was in excellent physical condition with limited capital expenditure needs. The borrower defaulted on its $25 million loan, dealing a significant blow to an investment firm’s collateralized loan obligation (CLO) fund. The mortgage loan was transferred to SitusAMC special servicing. The directing holder needed the borrower to cure the default, but did not want to take possession of the asset. 

SitusAMC demonstrated to the borrower that it had significant equity in the property to protect. SitusAMC then negotiated a flexible modification on default interest and reserves and allowed the borrower to use FF&E reserves for operating shortfalls and debt service, in exchange for an agreement to bring and keep the loan current. SitusAMC enhanced the loan on the one hand, but also gave the borrower a time extension so it could survive the difficult period of pandemic shutdowns. 

The resort was an easy drive from several major cities, and upscale guests flocked to the property as soon as lockdowns were lifted. Revenue quickly rebounded. The sponsor brought the loan current and agreed to pay $65,000 out of what had been accrued and held through modification. When the loan came up for extension, the property was clearly heading in the right direction, but it missed certain tests for debt yield thresholds. So SitusAMC agreed to waive a debt yield provision for some requirements to keep the loan performing. With an agile approach, SitusAMC successfully rehabilitated the loan.