Workout Process Research Articles

Toward human-like adaptability in robotics through a retention-engineered synaptic control system.

Although advanced robots can adeptly mimic human movement and aesthetics, they are still unable to adapt or evolve in response to external experiences. To address this limitation, we propose an innovative approach that uses parallel-processable retention-engineered synaptic devices in the control system. This approach aims to simulate a human-like learning system without necessitating complex computational systems. The retention properties of the synaptic devices were modulated by adjusting the amount of Ag/AgCl ink sprayed. This changed the voltage drop across the interface between the gate electrode and the electrolyte. Furthermore, the unrestricted movement of ions in the electrolyte enhanced the signal multiplexing capability of the ion gel, enabling device-level parallel processing. By integrating the unique characteristics of the synaptic devices with actuators, we successfully emulated a human-like workout process that includes feedback between acute and chronic responses. The proposed control system offers an innovative approach to reducing system complexity and achieving a human-like learning system in the field of biomimicry.

Corporate Loan Recovery Rates under Downturn Conditions in a Developing Economy: Evidence from Zimbabwe

In this study, we design stepwise ordinary least squares regression models using various amalgamations of firm features, loan characteristics and macroeconomic variables to forecast workout recovery rates for defaulted bank loans for private non-financial corporates under downturn conditions in Zimbabwe. Our principal aim is to identify and interpret the determinants of recovery rates for private firm defaulted bank loans. For suitability and efficacy purposes, we adopt a unique real-life data set of defaulted bank loans for private non-financial firms pooled from a major anonymous Zimbabwean commercial bank. Our empirical results show that the firm size, the collateral value, the exposure at default, the earnings before interest and tax/total assets ratio, the length of the workout process, the total debt/total assets ratio, the ratio of (current assets–current liabilities)/total assets, the inflation rate, the interest rate and the real gross domestic product growth rate are the significant determinants of RRs for Zimbabwean private non-financial firm bank loans. We reveal that accounting information is useful in examining recovery rates for defaulted bank loans for private corporations under distressed financial and economic conditions. Moreover, we discover that the prediction results of recovery rate models are augmented by fusing firm features and loan characteristics with macroeconomic factors.

How much time is needed in clinical practice to reach a diagnosis of clinically established Parkinson's disease?

IntroductionThe implementation of accepted clinical diagnostic criteria has improved the accuracy of a clinical diagnosis of Parkinson's disease (PD). Time frames of 3–10 years have been empirically proposed to reach a diagnosis of clinically established PD. MethodsWe explored the time to a Final Clinical Diagnosis (FCD) and the factors that predict faster diagnoses in patients presenting with parkinsonism and/or tremor between 2009 and 2015 at our tertiary center. All patients underwent a standardized workout process to reach a FCD, which included an acute levodopa challenge (LDC) after the first visit. ResultsAmong the 326 patients included, 215 (66%) received a FCD within the first six months after the LDC. A FCD was reached in 95% and 100% of patients in 33 and 108 months, respectively. PD was the FCD in 196 patients (60.1%). The FCD was reached faster in patients with a positive response to levodopa and when the FCD was PD. ConclusionThe time needed to reach a final diagnosis in the clinical setting was 2.75 years in 95% of patients presenting initially with parkinsonism and/or tremor. Patients with positive responses to levodopa at the LDC, benefited from shorter delays until the FCD.

Loss given default in SME leasing

Leasing provides a fundamental source of firm funding, especially for small and medium-sized enterprises. A crucial difference from loans and bonds is that the lessor retains ownership rights of the leased asset during the lease term. This facilitates the asset utilization and work-out process and leads to higher liquidation proceeds. Hence, previous findings on the loan and bond loss given default (LGD) are not transferable to the leasing industry. Our analysis is based on a very granular data set covering a great variety of information on the lessee, the leased asset, as well as contractual and transactional characteristics. We examine novel LGD determinants such as an external credit rating, the lessee’s limited liability, and the number of leased assets and collaterals. Moreover, new results on previously explored factors question earlier findings, for example, on the lease contract type. Most importantly, as proposed by Miller and Töws (J Bank Finance 91:189–201, 2018), we analyze two different LGDs, one based on the asset utilization proceeds, the other on repayments. Our results clearly indicate the crucial importance of this separation when analyzing the drivers of the leasing LGD in detail because several determinants affect these LGDs in different ways. Our study assists both lessors and regulators in assessing the effective risk of lease contracts and enables lessors to enhance their risk management and work-out processes.

Positive Payment Shocks, Liquidity and Refinance Constraints and Default Risk of Home Equity Lines of Credit at End of Draw

Using a unique and comprehensive dataset of loan-level home equity lines of credit serviced by large US national banks, we confirm that default risk of home equity lines of credit increases at end of draw. More importantly, we quantify the increase in default risk with the size of positive payment shock at end of draw. Furthermore, we find the effects are more pronounced when borrowers are under greater liquidity or refinance constraints and less pronounced if banks manage the credit risk proactively by freezing the credit lines. Our findings are robust across various model specifications and risk segments, payment shock definitions, and after controlling for sample selection bias from HELOC payoffs. These results have important implications for evaluating and managing HELOC credit risk: (i) the need to capture payment shocks, liquidity and refinance constraints in credit risk models, (ii) the benefit of smoothing payment shocks in contract design as well as the workout process, and (iii) the need to consider proper timing for tightening HELOC lending standards.

The Impact of Skin in the Game on Bank Behavior in the Securitization Market

Based on European RMBS deals with 24 million quarterly loan observations, we examine the effect of risk retention on bank behavior. Using OLS, propensity score matching, and instrumental variable regressions, we examine why retention deals perform better. Analyzing monitoring effort and the workout process, we find that the probability of rating updates or collateral revaluations is higher, and the rating quality is better. Retention loans have a lower probability of becoming non-performing, a lower delinquency amount, and a shorter time in arrears. Moreover, non-performing and defaulted retention loans are more likely to recover. We observe that total losses are lower for deals with retention, which are driven by lower default rates, lower exposures at default, and higher recovery rates. Overall, our results suggest that retention reduces moral hazard and incentivizes banks to exert higher effort, which results in superior securitized asset performance.

The New Bond Workouts

Bond workouts are a famously dysfunctional method of debt restructuring, ridden with opportunistic and coercive behavior by bondholders and bond issuers. Yet since 2008 bond workouts have quietly started to work. A cognizable portion of the restructuring market has shifted from bankruptcy court to out-of-court workouts by way of exchange offers made only to large institutional investors. The new workouts feature a battery of strong-arm tactics by bond issuers, and aggrieved bondholders have complained in court. The result has been a new, broad reading of the primary law governing workouts, section 316(b) of the Trust Indenture Act of 1939 (“TIA”), which prohibits majority-vote amendments of bond payment terms and forces bond issuers seeking to restructure to resort to exchange offers. This Article exploits the bond market’s reaction to the shift in law to reassess a long-standing debate in corporate finance regarding the desirability of TIA section 316(b). Section 316(b) has attracted intense criticism, with calls for its amendment or repeal because of its untoward effects on the workout process and tendency to push restructuring into the costly bankruptcy process. Yet section 316(b) has also been staunchly defended on the ground that mom-and-pop bondholders need protection sharp-elbowed issuer tactics. We draw on a pair of original, hand-collected data sets to show that many of the empirical assumptions made in the debate no longer hold true. We show that markets have learned to live with section 316(b)’s limitations, denuding the case for repeal of any urgency. Workouts generally succeed, so that there is no serious transaction cost problem stemming from the TIA; when a company goes straight into bankruptcy there tend to be independent motivations. We also show that workout by majority amendment will not systematically disadvantage bondholders. Indeed, the recent turn to secured creditor control of bankruptcy proceedings makes them all the more attractive to unsecured bondholders. Based on this empirical background, we cautiously argue for the repeal section 316(b). Section 316(b) no longer does much work, even as it prevents bondholders and bond issuers from realizing their preferences regarding modes of restructuring and voting rules. We do not know what contracting equilibrium would obtain following repeal, but think that the matter is best left to the market. Still, we recognize that markets are imperfect and that a free-contracting regime may result in abuses. Accordingly, we argue that repeal of section 316(b) should be accompanied by the resuscitation of the long forgotten doctrine of intercreditor good faith duties, which presents a more fact-sensitive and targeted tool for policing overreaching in bond workouts than the broad reading of section 316(b).

Loss given default adjusted workout processes for leases

Abstract Employing defaulted leases, this study divides the loss given default (LGD) into two parts. So far, LGD has been regarded as a holistic measure of risk. However, considering the specifics of leases, we distinguish between asset-related and miscellaneous revenues of the workout process in order to calculate component LGDs. We introduce a multi-step approach to estimate the overall LGD of leases, based on its economic composition. The performance is assessed out-of-sample and out-of-time. We find that our approach generates stable and accurate estimations. Moreover, using the estimated component LGDs, we obtain valuable information regarding the debt collection procedure that lead to monetary advantages for the lessor.

From Delinquency to Foreclosure a Model of Loan Workout

This paper investigates the impact of recourse on the workout process of portfolio commercial mortgage loans. A generalized model of mortgage workout with stochastic property value appreciation is developed and closed form expressions are derived for the relations between recourse and credit spreads. We find that the recourse provision is effective in offsetting borrower's unwillingness to cooperate by keeping the borrower engaged during the workout process. The prospect of negative equity through a deficiency judgement poses a threat to borrowers thus incentivizing them to resolve distress constructively. As expected, credit spreads exhibit an inverse relationship with respect to recourse with higher recourse loans having lower credit spreads. Somewhat surprising is that we find that this relationship is nonlinear with steep drops in spreads at low levels of recourse. This suggests that relatively low levels of recourse can be used as a substitute to collateral quality.

Beyond Balancing the Interests of Creditors and Developing States

The traditional view of sovereign debt as a relationship between a developing country government and and its foreign private creditors is increasingly out of date. Financial institutions and individuals inside the borrowing countries are are becoming more and more important as creditors to their governments. At the same time, as countries remove restrictions on cross-border capital flows, foreign creditors are participating more actively in domestic law, local-currency debt markets. These developments imply fundamental changes in lending decisions and, where the loan goes bad, in the sovereign debt workout process.

Debt Restructuring and the Role of Banks’ Organizational Structure and Lending Technologies

While the literature on debt restructuring usually assumes that banks behave uniformly towards distressed firms, we demonstrate that banks follow different strategies when they decide whether to take part in the workout process or not. Using a survey of Italian banks, we link this heterogeneity to banks’ internal organization and lending technologies (transactional versus relationship lending). The probability of debt restructuring is higher when the bank is geographically closer to the borrowing firm, relies more on soft information than on credit scoring (except when credit scoring is used for monitoring purposes) or adopts a decentralized structure.

Lender-Borrower Relationships In Austrian Banks: An Exploratory Study Of Distressed Loans

Drawing on interviews with the heads of the workout units of a non-probability sample of 12 Austrian banks, this exploratory study investigates the relationship between distressed borrowers and their banks. The heterogeneous sample was selected based on several structural factors with one main criterion being the regional or international focus of the respective bank. The findings suggest that internal loan workouts are the predominant and preferred strategy amongst most interviewed banks. However, while the international banks do not restructure at all costs, working out the distressed nature of the loan appears to be the overarching objective of regional and smaller banks. By implication, the regional banks were found to be more ‘hands-on’ when dealing with distressed loans than their larger international counterparts. Active loan workout processes and specialised units were also found to be part of both international and regional banks’ strategies to deal with distressed loans. The regional banks were also more inclined to include the relationship banker in the workout process and tend to take longer to workout distressed loans.

Commercial Real Estate, Distress and Financial Resolution: Portfolio Lending Versus Securitization

This paper examines the contrasting influence of portfolio lending and securitization in the resolution of distressed commercial real estate. The empirical analysis utilizes a large and unique data set of distressed commercial mortgages. The data set is constructed based on the recent financial crisis and includes portfolio and securitized loans. The main hypotheses address the marginal impact of portfolio versus securitized loans on the likelihood of resolution, resolution outcome, time to resolution and capital recovery rates. Conditional on a loan becoming troubled, we find that distressed commercial real estate loans held in a portfolio are more likely to be resolved and experience higher foreclosure rates compared to those that are securitized. Furthermore, portfolio loans experience shorter time to resolution and higher capital recovery rates when resolution is relatively swift. Our study is intended to contribute to the growing literature on distressed asset resolution and to provide new perspectives on how different lending options impact the financial resolution and workout process in a distressed commercial mortgage market.

Estimating loss-given default through advanced credibility theory

The New Basel Accord allows internationally active banking organizations to calculate their credit risk capital requirements using an internal ratings based approach, subject to supervisory review. One of the modeling components is the loss-given default (LGD): it represents the credit loss for a bank when extreme events occur that influence the obligor ability to repay his debts to the bank. Among researchers and practitioners the use of statistical models such as linear regression, Tobit or decision trees is quite common in order to compute LGDs as a forecasting of historical losses. However, these statistical techniques do not seem to provide robust estimation and show low performance. These results could be driven by some factors that make differences in LGD, such as the presence and quality of collateral, timing of the business cycle, workout process management and M&A activity among banks. This paper evaluates an alternative method of modeling LGD using a technique based on advanced credibility theory typically used in actuarial modeling. This technique provides a statistical component to the credit and workout experts’ opinion embedded in the collateral and workout management process and improve the predictive power of forecasting. The model has been applied to an Italian Bank Retail portfolio represented by Overdrafts; the application of credibility theory provides a higher predictive power of LGD estimation and an out-of-time sample backtesting has shown a stable accuracy of estimates with respect to the traditional LGD model.

A study on the improvement of the operation scheme in the Personal financial workout Process

A study on the improvement of the operation scheme in the Personal financial workout Process

The Resolution of Corporate Distress Inside and Outside of the Courtroom

This paper focuses on a theoretical well-worked area in corporate finance which however, lacks (at least) recent empirical evidence, namely the interaction between corporate distress and creditor concentration. We tackle this topic by providing a large sample evidence on the resolution of distress and distressed firms’ debt structure/concentration using a new database of publicly listed U.S. firms. We are able to analyze firms restructuring out-of-court and firms filing for formal bankruptcy procedure between 1999 and 2010. Our results suggest that both workout processes are efficient in generating sufficient information for an optim al liquidation versus reorganization decision thereby sorting efficient from ineffi cient firms. The feasible workout process depends on the concentration structure of debt, i.e. dispersed or concentrated. Financially distressed firms with concentrated debt can restructure out-of-court. Firms with dispersed debt have to undergo a formal bankruptcy procedure due to hold-out issues and thereby incur more distortion to their businesses. However, several Chapter 11 characteristics, such as prepackaging and DIP financing, speed up the procedure and thereby help financially distressed firms to emerge as reorganized from Chapter 11 rather quickly.

Debt Restructuring and the Role of Lending Technologies

The literature on debt restructuring usually assumes that banks behave in a uniform way towards firms in distress. Using a recent survey of Italian banks, we show that banks follow different strategies when they decide whether to take part in the workout process, in that some of them do restructure their debt claims towards small and medium-sized enterprises in distress, while others do not. We explain this heterogeneity by considering the role of banks’ internal organization and lending technologies, which the literature has shown to be strictly tied to the type of relationship developed with the borrower (transactional versus relationship lending). We find that the probability of debt restructuring is higher when the bank: i) is geographically closer to borrowing firms; ii) relies more on soft than hard information; and iii) adopts a decentralized structure with more power allocated to local managers. However there are important complementarities among organizational variables: the adoption of credit scoring increases the likelihood of restructuring if banks also use these techniques systematically in the monitoring process and if they adopt more decentralized structures. Bank size per se is not able to fully explain this heterogeneous behaviour, as organizational forms and lending technologies may also have important consequences on bank decisions.

General Electric: Lessons in Strategic Management

GE is the ninth biggest and second most profitable company in the world. The company was revitalised by inducing self-confidence and adopting tools like workout and Change Acceleration Process (CAP) to multiple business units in different industries. GE was the first corporate to systematically apply a number of management concepts. Its success is rooted in its movements of ideas and management talent around the group. The strong performance of GE is its successful corporate portfolio management. Many of the large business units of GE differentiate their output with high quality while they simultaneously maintain low per unit cost operation. It adopted three company-wide growth initiatives: globalisation, services and Six Sigma Quality. The intensity of globalisation is reflected from the fact that GE revenues have grown 6% per year in the U.S. and 17% globally. GE dramatically adopted Six Sigma Quality in its products, which radically changed overall measures of operating efficiency. GE wants its every product and service designed for six sigma. Six Sigma for GE is embedding quality thinking, process thinking across every level and in every operation around the globe. Jack Welch, CEO of GE restructured the company through integration, diversification, mergers, strategic alliances and retrenchment. He imposed higher productivity at all levels, trimmed inventories using just-in-time technique and dismantled bureaucracies. Under him, GE is engrossed in stretch and quality performance. The future strategies of GE are globalisation, the move from manufacturing to services and the internet.

Can insiders bail themselves out before private renegotiation?

AbstractThis study examines insider trading for a sample of firms that announce a workout agreement, controlling for both successful and unsuccessful workout attempts. I find that insider trading activity is related to the outcome of the workout proposal. Managers tend to bail out (sell shares) of firms that are unsuccessful in the workout process while they purchase shares prior to the workout announcements if the firms are ultimately successful in their workout. In addition, the evidence suggests managerial trading behavior is related to the workout market reaction. When a workout announcement is preceded by insider buying (selling), the stock price reaction is positive (negative). Overall, the evidence presented in this article is consistent with the notion that insider transactions convey private information to the stock market about a financially distressed firm.

Bank‐led restructuring in Poland: the conciliation process in action1

AbstractPoland's 1993 Enterprise and Bank Restructuring Programme (EBRP) tried to force state‐owned commercial banks to build institutional capacity and resolve their problem loans. The outcome of its innovative bank‐led workout (‘conciliation’) process, documented in this study of 62 firms, is decidedly mixed. The EBRP forced banks to confront their problems, helped them to build instituional capacity in their workout units, and furthered the difficult task of weeding out and closing clearly unviable firms. Yet it had limited power to promote needed restructuring or privatization in firms. The conciliation agreements were relatively unsophisticated and include few tangible requirements for operational or management change. The first two years of implementation saw a slowdown (over earlier years) in the rate of layoffs, a decline in average operating profitablility, and very little real privatization. The main impact of conciliation appears to have been to reduce debt service and thereby give firms ‘breathing room’.