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Business SOLUTIONS
Using Technology to Automate
Mission-Critical Debt Management
Oren Rosen
Cougar Software
R aising capital and successfully managing debt is one of the • The potential to become corrupted through transposition errors,
foundations of any Commercial Real Estate (CRE) company. omissions and data re-entry
Effective debt management can greatly enhance performance
in good times and mitigate risk in bad times. The majority of CRE • Reliance on key individuals to create and manage these manual
companies use debt as a financing tool and are painfully aware of the systems
tightrope they walk between optimizing their debt positions and falling
foul of debt covenants. The ability to effectively and efficiently monitor • Inconsistencies between different spreadsheet users—leads to
covenant statuses, anticipate portfolio cash flows, and manage liquidity problems in understanding how data is represented and user intent
positions in a timely manner is becoming increasingly important.
• Very difficult to run financial debt models or perform hypothetical
Almost every day in the financial news, we hear of companies needing analysis with spreadsheet based tools
to restructure their debt. Often debt restructuring is required as a result
of a breach of one or more covenants associated with a loan. Beyond • Version control becomes difficult to follow with different versions
the imposition of stiffer interest rates and new loan terms, the impact residing on different workstations; tracking of multiple versions and
of such breaches may be hugely damaging the most current data is complicated and prone to errors
to a CRE company. The company may need
to declare bankruptcy, as was the case for • Rollup consolidations of asset types and country locations into a
many CRE companies during the recent single portfolio is complex and time consuming
global financial crisis. At the height of the Reports, produced manually from
crisis, property values had fallen by 30% multiple sources, are labor intensive,
or more in some sectors. According to De especially if multiple departments or
Montfort University’s mid-year 2013 UK business units are involved. A drilldown
property lending survey, by the end of 2009 to greater detail is often impossible. Ad
£28.3 Billion (approx. $45 Billion) of property hoc reporting or reporting at any point
loans recorded in the UK were in breach of other than the traditional month-end, is
their financial covenants. disruptive to normal debt management
operations and places additional strain on
ISSUES: MANAGING DEBT TODAY personnel.
Within the CRE world, where a single portfolio may consist of hundreds Determining the state of the required
of loans, monitoring debt covenants and managing debt positions is debt coverage and service ratios is both
critical to an organization’s survival. labor intensive and time consuming.
Traditional integrated financial systems do not have the functionality There is no real ability (or time) to analyze and optimize debt loads
to manage: or accurately project future debt requirements. The actual terms of
each loan and its specific covenant conditions remain buried in the
• the intricacies of individual loan agreements details of the physical loan documents. Consequently, the risk of
• the complexities of multi-country differences and idiosyncrasies covenant breaches expands exponentially with the addition of each
• the mix of different asset types in their CRE portfolios, e.g. office, new loan.
industrial, retail, hotels, residential and developments THE IDEAL SOLUTION
As a result, CRE companies are forced to turn to other solutions, Rather than spending inordinate amounts of time on data collation,
including developing complex spreadsheet solutions, which are not preparation and manual processes, debt management could be largely
integrated with the rest of the organization’s financial systems. automated, structured and streamlined—freeing up resources to focus
In addition to being orphaned from other corporate systems, these on value-add opportunities for the business.
custom spreadsheet solutions have a number of related issues including:
Debt management by CRE companies would include the
32 Realcomm implementation of a powerful, flexible, and adaptable automated
solution that would:
