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Troubled Debt Restructuring (TDR) was among important provisions signed into law as part of the coronavirus aid package in late December.
Throughout 2020 ICSC worked with our members and closely aligned trade associations to address concerns related to debt service.
“ICSC is pleased that after months of work this provision was included in the final legislation to provide lenders with the ability to continue offering the best options for borrowers,” Jennifer Platt, ICSC Vice President, Federal Operations, said. “However, we also know that there are still significant concerns for retail real estate borrowers that will need to be worked out in the coming months.”
Early in the pandemic federal financial regulators, along with the Financial Accounting Standards Board (FASB), issued guidance allowing flexibility for TDR to permit reasonable loan modifications for commercial assets impacted by COVID-19. The regulatory guidance made it easier for lenders to reduce their loss-absorbing capital and keep credit flowing amid economic stress from the pandemic. Congress followed-up with legislation extending the TDR flexibility until the end of 2020 in the CARES Act relief package in March 2020.
Many, including Ben Greazel, Executive Managing Director, Real Estate Finance, NKF Capital and a member of the ICSC Economic Policy Committee, believe that the TDR regulatory flexibility has been an important factor in bank and life insurance company loan modifications since the initial stages of the pandemic.
“TDR flexibility has been incredibly necessary for both users of capital as well as providers of capital,” Greazel said. “The stress felt in 2020 by both sides was not a result of irresponsible lending or poor asset management, but that of global pandemic. Commercial real estate was in need of a pause button and TDR, to an extent, provides that breathing room for both sides.”
As the pandemic continued it became apparent in the second half of 2020 that an extension of the TDR flexibility would be necessary to stop a wave of assets from going into the troubled debt category, limiting banks’ ability to work with borrowers and increasing the amount capital reserves required. The TDR provision was also paired with a delay for the Current Expected Credit Losses (CECL) standard for smaller banks, which would have required lenders to immediately account for potential losses when they issued loans.
As the end-of-year COVID relief bill came together in the final days for 2020, these seemingly straightforward provisions became a bargaining chip for eviction moratorium and other financial services issues.
The ICSC Global Public Policy team worked hard to educate policymakers about what could happen to the retail real estate industry should all impacted assets be pushed into a distressed category at one time. Several allied organizations, including the American Bankers Association, American Hotel and Lodging Association, the Asian-American Hotel Owners Association, the Commercial Real Estate Finance Council, the Mortgage Bankers Association and the Real Estate Roundtable actively lobbied alongside ICSC to advance this important provision.