Q: What if the borrower is a new entity and was created to be a holding company for this single property? Does the focus shift to the property’s performance or to the guarantor?
A: The same process holds. Focus on the holding company initially since it is the obligor responsible to service the debt on the property, then on the guarantor, and then on the property.
For a newly created holding company, it may differ little from the property, but it will differ as we will see in Session 8 especially. We'll find, in this process, that the newly created holding company, and its ability to meet its debt service obligations, may be constrained by global cash flow considerations.
Course overview: Ratios, Borrower Cash Flow, and the First Way Out