Every lender eventually holds a loan whose plan has gone wrong. A construction schedule slips, a major customer leaves, a refinance market closes or a portfolio realization takes longer than expected. What happens next depends on three things: the facts, the documents and the relationship. This chapter explains all three, and why a senior secured position is designed to matter most at exactly this point.
Why this chapter exists
Borrowers and sponsors deserve to know how a lender behaves when things are difficult before they sign, not after. We focus on the top of the capital structure: first-lien, senior secured positions. We consider mezzanine only selectively, with strong control rights. We underwrite every loan to the value of what stands behind it, and we ask, before lending, what it would be worth, how long it would take and what it would cost if we had to take the asset back. That question is the bridge between underwriting and workouts. See how we underwrite a loan.
Our published approach to servicing is also relevant: we originate, structure and service every loan directly, and workouts are among the steps we control ourselves. The people who made the loan are the people who will work through a problem with the borrower.
The spectrum of outcomes
Most troubled loans never reach enforcement. The sequence below moves from the least to the most disruptive, and each step is available only if the one before it fails or does not fit.
| Stage | What it is | Typical tools |
|---|---|---|
| Early warning | Performance drifts from the underwriting case | More frequent reporting, site visits, a revised business plan |
| Amendment or waiver | A covenant or deadline needs to change | Waiver, amendment, reset covenant, fee |
| Forbearance | A default exists and the lender agrees, for a time, not to exercise remedies | Forbearance agreement with milestones |
| Restructuring | The loan’s terms are changed more fundamentally | Extension, paydown, new equity, PIK, additional collateral |
| Consensual exit | The borrower hands over or sells the collateral by agreement | Deed in lieu, consensual sale, friendly foreclosure |
| Enforcement | The lender exercises its rights under the documents and the law | Foreclosure, UCC sale, receivership, collection of guarantees |
What drives the choice
The facts
Is the problem temporary or permanent? A lease-up running six months behind with healthy demand is a very different problem from a submarket with collapsing rents. A cost overrun that new equity can cover is different from one that makes the project unfinishable at any reasonable basis.
The documents
The covenants, collateral and guarantees and any intercreditor agreement define who can do what, and when. A well-drafted package gives a lender options; a weak one forces it either to accept losses or to litigate.
The people
A sponsor who discloses early, keeps reporting and commits fresh capital is usually given more time and flexibility than one who stops answering the phone. Candor in both directions is the most valuable thing in a workout.
Why permanent capital matters here
Lenders financed by short-term borrowings or with fixed investment periods can be forced to sell troubled loans or to enforce on a timetable set by their own financing. We lend our own permanent capital and hold every loan on our balance sheet. That does not make us lenient: it makes us able to choose the outcome that best protects principal, whether that is more time, a restructuring or enforcement. See lending from permanent capital.
In this chapter
- Defaults, waivers, forbearance and restructuring: the kinds of default, how lenders respond, what a forbearance agreement contains and the menu of restructuring tools.
- Enforcement and remedies: judicial and nonjudicial foreclosure, UCC Article 9 sales, receivership, deeds in lieu, guarantees and the basics of bankruptcy, including the automatic stay.
Advice for borrowers
- Tell your lender early. Problems disclosed early have more solutions.
- Bring a plan, not just a problem. A revised budget, schedule and sources of new capital.
- Keep reporting. Silence is the fastest way to lose a lender’s confidence.
- Know your documents. Understand cure periods, guarantee triggers and cash management provisions before you need them.
- Get advice. Experienced restructuring counsel helps both sides reach a sensible outcome.
Case studies
Several of our case studies show structures designed with a difficult outcome in mind, including Project Anvil, a turnaround term loan with a PIK component, Project Saguaro, a construction completion loan, and Project Harborlight, a selective mezzanine loan with control rights.
This chapter describes general US concepts at a general level. Remedies vary by state, by collateral and by the terms of each loan, and every situation needs its own legal advice.
This entry is general information as of November 2026, not investment, legal or tax advice, and not an offer of securities.