A corporation’s business risk and/or financial
risk profile changes because of an event (currency turmoil) or in anticipation of an event
that is likely to occur. There are 7 stages you go through before borrowers and
lenders come to an understanding.STAGE 1 --- DENIAL
Focus on the good times of the past instead of the reality of the
present
Creditors limited understanding of the company’s business is revealed
Relationship starts to matter to borrowers but not creditors
Client is no longer in the driver’s seat and is unable to demand anything from the
banks
STAGE 2 --- CONFUSION
Demand by lenders for lots of information
Significant increase in lenders and borrowers’ paperwork as the monitoring process
begins
A focus on past mistakes
Balancing act between liquidity and keeping creditors happy
STAGE 3 --- DESPAIR
Reality sinks in:
Borrower finally understand that the lender is only focused on its needs and not theirs
Borrower and creditors begin to realize the limitations of their documentation
