Turn a downside model into a funded contingency decision

A contingency memo should connect the model to a decision. State what changes, how the change affects financing capacity, what cash remains available and which action must begin before options expire. A list of pessimistic percentages without an owner or deadline does not prepare the transaction.

The OCC handbook discusses adverse-condition analysis in underwriting. The workbook below is an original hypothetical planning aid. It neither predicts a market outcome nor promises a refinancing, extension or sale.

Define a coherent stress

Change assumptions together when they are causally related. Lower occupancy may reduce cash flow and increase leasing costs; a delayed completion may add interest and push income later. Explain those relationships instead of treating each sensitivity as an independent surprise.

This compact workbook focuses on annual cash flow, an annual debt-service constant, an additional sizing ceiling and total maturity uses. Use the detailed calculators for payment schedules, holdbacks and timing. The debt constant is annual service divided by loan amount, not simply the note rate.

Blank contingency matrix

scenario_id,annual_ncf_usd,minimum_dscr,annual_debt_constant_percent,dscr_capacity_usd,other_constraint_usd,modeled_gross_loan_usd,maturity_uses_usd,available_equity_usd,surplus_or_gap_usd,action_and_deadline
S001,,,,,,,,,,

Field instructions and common errors

A negative cash-flow input remains visible, but modeled DSCR capacity is floored at zero: a cash-flow shortfall does not create negative loan proceeds. The additional sizing ceiling must be nonnegative. Missing inputs, nonpositive denominators and an invalid additional ceiling remain unassessed. The final funding gap keeps its sign, so zero debt capacity still exposes the amount of equity needed.

Completed hypothetical cases

scenario_id,annual_ncf_usd,minimum_dscr,annual_debt_constant_percent,dscr_capacity_usd,other_constraint_usd,modeled_gross_loan_usd,maturity_uses_usd,available_equity_usd,surplus_or_gap_usd,action_and_deadline
BASE,600000,1.25,8,6000000,5500000,5500000,5600000,400000,300000,Reconfirm terms before current contractual maturity
DOWNSIDE,510000,1.25,9,4533333.333333333,5000000,4533333.333333333,5600000,400000,-666666.666666667,Owner: sponsor; start alternate sale/extension analysis 90 days before assumed maturity
SEVERE,480000,1.25,10,3840000,4800000,3840000,5600000,400000,-1360000,Owner: sponsor; no funded solution demonstrated; escalate immediately in scenario

The base row has $600,000 cash flow, a 1.25× test and an 8% constant. DSCR capacity is $6 million, but the additional ceiling limits the loan to $5.5 million. With $400,000 available equity and $5.6 million uses, the modeled surplus is $300,000.

The downside produces approximately $4.533 million DSCR capacity. Adding the same $400,000 equity leaves a $666,667 gap. The severe row produces $3.84 million and a $1.36 million gap. These are funding requirements, not losses automatically realized today.

The example’s “90 days” is a planning assumption, not a contractual notice rule or a promise that a sale can close in that period. Replace it with actual notice requirements, diligence lead times and decision dates from the transaction.

Test the contingency itself

An extension may require a payment, updated underwriting or lender discretion. A sale may require costs, time and collateral release. New equity may require investment approval and can alter ownership economics. Model the proposed remedy’s cash, timing and conditions before labeling the gap solved.

Compare remedies on the same date and with the same obligations. Do not use a post-maturity sale receipt to cover a pre-maturity payment without a supported bridge. Preserve the unresolved case when no funded solution is demonstrated.

Assign an observable trigger

Use a trigger another person can verify: a signed lease missing by a date, an appraisal below a specified model value or a payoff funding gap above available equity. Identify who obtains the evidence and who decides.

Update the memo when facts change and retain the earlier scenario. A useful contingency package shows both the financing sensitivity and the practical path to a decision while that path is still available.