Legal expert: lenders want to see a ‘recovery plan’ as deferrals expire

“What the lenders really want to hear is, ‘is there a recovery plan,’ and they want to see it,” said attorney Ed Kaye. “If you can provide this information, you’re gonna be on much more solid footing.”

Attorney Edward P. Kaye

Kaye, of the New York law firm Schickler Kaye LLP, shared that insight on a recent UMA Town Hall, the association’s weekly call with members. 

The presentation was a follow-up to one he made in October about communicating with lenders during the pandemic. His latest presentation offered strategies for dealing with lenders as deferrals are expiring. In the past five months, a number of operators have seen very modest upticks in business, which is a good sign.

Unfortunately, the industry is also beginning to see the repossession of vehicles taking place. This scenario tends to happen when there isn’t communication, the operator doesn’t have a legitimate or realistic recovery plan and the lender feels insecure with their collateral, Kaye explained.

“In my opinion, we’re at a tipping point. The banks are starting to figure out what they need to do to move forward. But that shouldn’t be interpreted by coach operators as having no leverage, because the underlying theme is that the lenders don’t want this collateral back, and they understand that most operators at this point have no equity in the fleet,” Kaye said. 

Options to consider

So, while the pandemic continues, he urges operators to remember there are the following options to consider, and he outlined the details for each one. They are:

  • Continue to operate as the economy recovers.
  • Downsize your operations.
  • Negotiate more favorable terms with lenders.
  • Merger and acquisition.
  • Seek relief through bankruptcy.
  • Turn in the keys.

“Lenders are continuing to struggle with the motorcoach industry,” he said. However, he underscored that the appearance of honesty is key, and a positive attitude goes a long way, too.

Communicate early

Kaye urges operators to communicate clearly a recovery plan and update their financial forecast for the next one, two or three years.

“The more organized you are, the more likely your lender will listen to you,” he said. 

These documents should include an up-to-date balance sheet and profit-and-loss statement, and a 12-month forecast, at a minimum. Consider a multi-year forecast — even five years. Show best-case and worst-case scenarios. He warns operators not to embellish or be too aggressive in these plans because lenders will keep them and refer to them in the future. 

As the first quarter comes to end in March, many deferrals will be expiring. As a result, a number of lenders will be expecting full payment in April. He encourages operators to have a clear understanding of what is in their loan and lease agreements.

Read your agreement

“If you go into default, the lender will follow the terms of the contract that you signed, and that’s what they’re going to hold you to,” said Kaye. “So, if you understand what some of these consequences are in the event of default, then you can have a better ability to manage around them, or through them, with the lender. If you haven’t read your agreements yet, now’s the time to do it. If this isn’t the type of reading that you really comprehend or want to undertake, you should hire a professional adviser to interpret your agreements for you.”

Kaye also encourages operators to reach out to their lenders first, instead of waiting for the banks to contact them. They should be able to explain whether they want a deferral, to make interest-only payments, partial payment or refinancing.

The key to negotiation is having documentation to support the payment plan, he said.

“I know that some operators get intimidated or feel they have no leverage in talking to lenders. Being able to communicate is really critical,” Kaye said. “At this point, if this type of conversation is difficult for you, I strongly urge you to find a third-party professional that is comfortable negotiating on your behalf.”

If you want more information, you can watch the online presentation or reach out to him at

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