Case: Accelerating a construction draw to meet competing guarantee calls

Hypothetical construction sponsor. A sponsor reports $12 million of net worth and supports three developments. Updated project budgets identify calls of $900,000 for Project A in month one, $700,000 for B in month two and $600,000 for C in month three. For this case, assume counsel and the parties have confirmed that these particular funding obligations are due as stated. The model does not determine guarantee enforceability.

The sponsor has $1 million cash and $2 million of securities. Of the securities, $800,000 is pledged elsewhere and unavailable. The remaining $1.2 million receives an assumed 75% eligibility value, or $900,000. Another firm obligation requires $300,000, and the sponsor must preserve $200,000 of separately specified ongoing cash liquidity.

Eligible resources recognized for these project calls are therefore $1.4 million. Net worth includes assets that cannot be turned into timely, unencumbered cash under the stated assumptions. The $12 million headline does not measure the capacity to meet the next three months’ payments.

Aggregate the calls before promising support

This eligibility schedule first fails in month two; it is not a cash-disbursement schedule. Before selling securities, actual cash available after the $300,000 outside obligation and $200,000 retained cash requirement is only $500,000. The $900,000 month-one call therefore has a $400,000 settled-cash shortage. The eligibility and wire-cash shortages are different tests of the same assets and must not be added together. By month three the cumulative shortage is $800,000. Each project’s lender might see sufficient support if it reviews only its own call against the original $1.4 million. That approach would allocate the same sponsor liquidity to multiple obligations.

The interagency workout statement, Section IV.B, specifically addresses the guarantor’s overall financial capacity and aggregate guarantees. It does not imply that every project budget deficit automatically becomes a legally due guarantee claim. Actual obligations, notices, limits and defenses must be reviewed separately.

Reconcile a shared contractor without counting it twice

Suppose the same contractor is owed $400,000 across A and B. The project’s updated schedules already include $250,000 in A’s $900,000 call and $150,000 in B’s $700,000 call. Adding the contractor’s consolidated $400,000 demand as a fourth funding use would overstate the aggregate need.

The correct base calls remain $2.2 million. The sponsor should match invoice identifiers, projects, payees and periods so each economic obligation appears once. A duplicate claim document is not necessarily a separate cash use, although resolving liens or disputed payment rights may involve additional costs that should be separately identified.

Now assume C may also face a distinct $360,000 obligation if a pending condition occurs. That item is not included in the $600,000 present call. Show it as a separate contingency rather than silently treating it as already due or omitting it. If triggered in the same period, total shortage rises from $800,000 to $1.16 million.

Test resources by both eligibility and date

The sponsor expects a $500,000 distribution from another property in month four. Even if that distribution ultimately occurs and is permitted, it arrives after the modeled month-two and month-three calls. It does not solve the earlier cash deadline without an effective timing change or temporary funding.

If the sponsor sells the $1.2 million of unpledged securities for the same amount of net cash, and cash receives full eligibility, recognized resources improve by $300,000 relative to the 75% haircut. If the sale settles before month one, cash available for calls becomes $1.7 million: $1 million existing cash plus $1.2 million sale proceeds less the $300,000 outside commitment and $200,000 retained cash. Month one leaves $800,000, month two leaves $100,000, and month three is $500,000 short. Without timely settlement, that improved schedule is not executable.

The sale does not produce a $1.2 million improvement because $900,000 was already counted. Taxes, transaction costs, price changes and settlement delays are excluded here and may reduce the benefit. The pledged $800,000 remains unavailable unless an effective release changes that fact.

The late $500,000 distribution could eventually replenish capital, but it still needs a bridge across the earlier funding dates. An uncommitted credit line or anticipated asset sale should remain a conditional source until amount, access, timing and resulting obligations are established.

Decide whether to accelerate an approved project draw

Assume a separately documented $600,000 portion of A’s $900,000 call fronts eligible invoices that an existing, approved and undrawn A construction facility will reimburse. The base schedule expects that reimbursement in month four, too late for B and C. It is distinct from the unrelated $500,000 distribution discussed above. The project’s cost-to-complete budget must already account for the facility draw; this is neither new loan availability nor profit.

For a hypothetical alternative, the lender and relevant parties agree that completing specified inspections and evidence can move that $600,000 reimbursement to before B’s month-two call. The acceleration requires $25,000 of additional work and processing cost paid in month one, outside the original calls. Assume the reimbursement is expressly permitted to restore the sponsor’s temporary advance and can then support B and C; an account restriction would defeat that assumption.

The change replaces the $500,000 month-three shortage with a $75,000 remaining cushion: the $600,000 earlier receipt less $25,000 incremental cost improves the schedule by $575,000. It does not reduce the underlying construction costs or eliminate the debt created by the draw. It coordinates the timing of an existing funding source with temporary sponsor support.

If reimbursement remains on the original month-four schedule, the extra $25,000 cost leaves just $75,000 after B and a $525,000 month-three shortage. Keep the alternate funding plan until inspection, release authority, draw availability and receipt timing are established. If C’s separate $360,000 contingency also becomes due, even the accelerated case is $285,000 short. The late outside distribution cannot cure a prior missed payment without an effective bridge.

Reconcile calls with each project’s completion budget

Funding a call is not the same as proving the project is fully financed. Each project’s remaining approved loan availability, remaining equity and realistic cost to complete must be reconciled after the contribution. The OCC construction-monitoring discussion provides context for that continuing review.

If A’s $900,000 cures only today’s invoices while a later interest reserve deficit remains, the sponsor’s future schedule needs another line. Conversely, if a call includes a contingency that is later released, the cash becomes available elsewhere only when the governing agreements permit the transfer and it actually occurs.

Present a global, dated support plan

The decision record should connect each current call to its documents, the project budget and the sponsor’s funding ledger. Separate presently due amounts, contingent exposures and disputed claims. Identify common causes such as the same contractor, weather delay or interest-rate movement that can make calls arrive together.

The eligible-resource screen shows an $800,000 deficit, while the initial wire-cash test fails in month one. A settled securities sale reduces the base month-three deficit to $500,000. The separately authorized reimbursement acceleration can bridge that base deficit at a $25,000 cost, with only $75,000 remaining and a continuing exposure to delay or the C contingency. A credible support plan must close the dated gap across all projects while preserving other obligations; a repeated net-worth statement cannot substitute for that plan.