Bankers offer advice on loan deferrals, extensions, restructuring

Fleets are among the biggest expenses on operators’ minds as they figure out the best way to manage during the current crisis.

Gregg Goedde

During a recent United Motorcoach Association town hall discussion, a panel of experts who write many of the vehicle loans in the motorcoach industry tackled vehicle values, deferrals and more operator issues. 

The panel included Matt Hotchkiss, Bus Division Sales Manager for Wells Fargo Equipment Finance; Gregg Goedde, Senior Vice President of Financial Services for ABC Companies; and Ryan Gulan, Executive Sales Representative at TCF Capital Solutions. The trio answered questions and offered insight on what operators should plan on in the coming months. 

Why do banks want more information for the second round of deferral requests?

The first deferral (for 90 days) was mostly a rubber-stamp approval. This time around, banks are doing a much deeper analysis. This is a credit decision, so they want to get deeper into a company’s finances and understand what’s going on with the business. 

“We want to know how you manage your costs. We know that you can’t control your revenue line right now, but, to some extent, you can control your expense line in terms of how you are managing costs. We want to understand things that you have done to manage that expense line,” Hotchkiss said. “We want to understand the liquidity position of the company. That’s your cash — including your PPP and EIDL loans — and how you’ve used that money or intend to use it. If you happen to have a credit line with your bank, we want to know the capacity and the amount that’s available to you, or other sources of cash. It’s really the total amount of cash that you have available to support your business right now.”

What’s cash burn and why is it important to banks?

Cash burn means what a company is spending in excess of what they are generating in revenue each month under the current conditions. That’s how much cash they use from their available liquidity pool – which is your revenue less expenses. How quickly you’re depleting your cash gives an estimate of how long you can go before you run out of cash. Bankers are asking for projections that tell them what the cash burn is so they can better understand your situation.

“I know that projections are difficult right now because every day is different. But ultimately, we both should know how well you’re managing expenses and how long that cash will last you. The way to look at it is to assume that conditions don’t change — business doesn’t return and there isn’t emergency funding from the government — the goal would be to manage your cash so you can try to get the business to next spring. Hopefully, next spring, things will be more back to normal. How does your liquidity hold up for your business?” Hotchkiss said. 

What do banks need to know about your situation? 

Keep records showing how you are managing costs. All these things will come into play and can tell a story.

“Look at what you want as if you were on the bank side. What would I want that bank or financial institution to know about me? What do they need to know about my company and what I’ve done to be successful? What sacrifices have I made? It’s key to track the expenses that you cut — this all comes into play when banks review and want to look at your financials for deferments or post-pandemic financing. “ Goedde said. 

Gulan added the relationship between the lender and the client throughout this pandemic is very important.

“Are we pursuing the customer to get a modification document back? Do we have delinquent payments because we have no communications? Or do we have a client who has a monthly call with us and gives us an update of their situation, their state, their region, and what they’re seeing and what they’re doing?” he asked. “That constant communication does help us not only explain to our credit shop that maybe they don’t see it every day like we do; it helps us tell the story, helps us better be prepared for future modifications, but it also gets us prepared with that relationship when it does come time for the traditional lending post-COVID.”

Can I extend my deferral?

Banks are providing a few strategies for deferring payments during the crisis. Wells Fargo, for example, is currently offering the options of three months for a full deferral, six months for an interest-only payment and nine months of half payments. Each will have a different long term impact on a loan, Hotchkiss noted.

“The difference between full skips and interest only is, if you fully skip a payment, then the loan balance increases. So, when you resume payments, they are based on that higher balance,” said Hotchkiss. “The better thing to do, if you have the cash, is to pay interest so the balance stays the same. Of course, it depends on where you are in that loan term. The further you are in the term, the lower the balance, therefore, the lower the interest payment. But interest payments are not a lot compared to the whole payment, and it’s a good way to keep your loan at the same balance through this deferral period.”

Added Goedde, “You don’t necessarily have to defer all payments or pay them all. It’s not an all or nothing approach. You can pay for the buses that you are operating. When I’m discussing this with operators, they often feel that all loans or leases have to be rewritten the same way at the same time with the same approach. That’s not necessarily the best. If there’s an opportunity for you to pay sooner on some coaches, certainly take advantage of it.”

Can we restructure our loans to extend the terms over a longer period?

ABC Companies has more flexibility because its financing arm isn’t a traditional bank and isn’t subject to the same regulations.

“On a case-by-case, bus-by-bus situation, we are working with end users to either help with a reduced payoff or do some sort of deferment. The key is that this is a time to negotiate with ABC. ABC is willing to look at balances owed and possibly reduce if it makes sense for both sides and the operator has a way to cash out their obligation.” Goedde said. “Do you have a line of credit? Do you have a local bank that can do some things for you? We have buses that operators have paid on for a while and we may be willing to reduce the balance on a payoff. Maybe some of your coaches fit the profile.  We are always willing to creatively work with operators and have actively been doing that.”

Hotchkiss said that isn’t something Wells Fargo is looking at, but may in the future.

Gulan said he has received that request from a few people.

“One thing that has come up is what is the current value of that unit right now and how much equity is there. We really don’t know that at this point. It’s kind of a wait-and-see approach to really understand where we’re at in the cycle and to have a better understanding of the asset,” he said. 

Hotchkiss, Gulan and Goedde, who have a combined 50 years of experience in the industry, encouraged UMA members to call them if they have any questions. Their full presentation during the UMA Town Hall is available to watch online. 

The secret to survival during this crisis will be staying informed because things are changing quickly. Make plans to take part in UMA’s weekly Town Hall meetings every Thursday at 2 p.m. Go to for details on how to participate in the Online Regional Town Hall meetings.

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