MNB?s Olson Argued Against Terminella Foreclosure

Documents obtained by the Northwest Arkansas Business Journal from the discovery in Tom Terminella’s lawsuit against Metropolitan National Bank have shed some light on the origins of their dispute.

The memos reveal the developer’s financial condition as well as the bank’s internal debate about the loan between its Washington County president Larry Olson and the MNB loan committee in Little Rock.

MNB filed two foreclosures against Terminella on May 30 totaling $12.2 million for separate loans for the Grand Valley subdivision project in Springdale and the Cornerstone commercial property in Bentonville.

Terminella, alleging breach of contract and good faith, countersued MNB on July 2 and claimed damages in excess of $50 million, the total amount of his assets at the time MNB foreclosed.

Among the items of note:

• A Feb. 26, 2007, memo from Olson to the loan committee said Terminella and his company had a peak of $90 million in direct and contingent investments and liabilities. Terminella had reduced that debt to $60 million at the time of the memo and held liquid assets of about $700,000.
• The much-disputed $500,000 certificate of deposit Terminella alleges MNB wrongfully liquidated in March was actually supplied by Thomas Bissmeyer, a silent partner in the Grand Valley project.
• In that memo, Olson argues against proceeding with foreclosure and estimated if the bank worked with Terminella to bring the lots to market it could reduce its exposure to between $200,000 and $1.5 million on Grand Valley.

“‘Pulling the plug’ at this point appears to be creating a larger problem than could possibly exist,” Olson wrote. “As detailed above, if we make demand and start foreclosure now, we have no chance of orderly performance on the two loans. Conversely, we would seem to be maximizing our potential exposure short of flushing out guarantors, which is a roll of the dice.”

The breaking point hinges on the timeline for bringing Grand Valley to market and a difference in interpretation of the agreed-upon loan budget for funding interest carry until the first phase was completed.

A Dec. 5, 2006, memo downgrading the loan status to the “special mention” risk category from MNB relationship manager Susan Slinkard said Terminella purposely slowed the subdivision because of the market downturn.

Terminella had not drawn $2.43 million of the $9.63 million in loan proceeds and his monthly interest was less than anticipated, Slinkard wrote.

The agreed-upon construction budget called for $600,000 in interim interest carry in the first year with a contingency line item of $270,000, which Terminella alleges was to be available to fund interim interest.

However, Slinkard wrote the bank had budgeted $572,572 to fund interim interest and even by that number Terminella still had $94,000 in unused interest carry.

According to Slinkard’s memo, MNB demanded he make the monthly payments rather than use loan proceeds.

Terminella was unable to do that and asked the bank to modify the loan to make interest due annually to allow him to complete the lots and generate income.

Olson’s Feb. 26 memo reveals Terminella’s company had $4 million in sales in January and said he would use some of that new liquidity to pay the accrued interest of nearly $405,000 on both notes in exchange for the Grand Valley interest being deferred until the loan maturity in September 2008.

Olson agreed to this with the condition of accelerating the maturity date to March 2008 to reduce the interest carry and ensure MNB would have been in position to take possession of land at its full value even if not a single lot had sold.

“It seems that we are somewhat being held hostage by Tom’s requests when, in reality, we should be in the ‘driver’s seat’ with our ability to take Tom and his guarantors down if they don’t perform at our demand,” Olson wrote. “Yet, we keep coming back to the fact that we have to make a business decision, not an emotional one.”

The loan committee rejected Olson’s advice, stipulating Terminella pay 50 percent of the interest due monthly and that the loans would remain in nonaccrual status.

Robert Ginnaven, Terminella’s lawyer, said he would have been foolish to agree to those terms by using valuable liquid assets to fund a loan that could still be foreclosed upon at any moment.