Question

Daniel Ortega owns a tropical fruit plantation in Central America. He has financed plantation operations with $50,000 of his own money, and with $950,000 he borrowed on a full recourse loan. The plantation had lost $550,000 through 2017. In 2018, Ortega approached his bank to refinance his loan. Because of warming relations between Central America and the U.S., (its principal market), and increased consumption of tropical fruit juices, his bank agrees to convert the loan to a nonrecourse loan in exchange for Ortega's payment of $100,000. What effect does the conversion have on Ortega?

Answer 1

The refinancing of loan of Ortega in the manner mentioned above give more time period to the company to repay the loan. Also in future with the increased consumption of tropical fruit juices, the overall revenue earned by the company will increase which will help the company in meeting its loan requirement in future. Thus, the above refinancing of loan will help the company in meeting its loan installments comfortably in future and will not have to sell its assets to meet the loan requirement.