Bad Boy Guaranty Risk Calculator

Bad boy guaranties convert to full recourse on specific acts. This calculator sizes exposure.

Loan principal

Guarantor net worth

Trigger probability %

Liquidity requirement %

Expected guarantor loss

$640,000

Liquidity requirement

$2,240,000

Net worth coverage

1.41

How the math works

Expected loss = principal × trigger probability. Net worth coverage = guarantor NW ÷ principal.

Run a bad-boy compliance checklist every quarter with counsel: voluntary-transfer review, subordinate-debt audit, rent-application confirmation, SPE housekeeping. A $3-5k per year compliance review neutralizes triggers worth the full loan balance.

How to Use

Enter loan principal.
Enter guarantor net worth.
Enter probability of trigger %.
Enter liquidity requirement % of loan.
Read expected loss.

Frequently Asked Questions

Bad boy acts?

Fraud. Misappropriation of rents/insurance proceeds. Willful physical waste. Voluntary bankruptcy. Unauthorized subordinate debt or transfer. Failure to maintain SPE. Each listed in the carveout exhibit.

Net worth / liquidity tests?

Common covenants: net worth ≥ 100-200% of loan, liquidity ≥ 5-10% of loan. Breach can trigger events of default even without bad boy acts. Monitor quarterly and maintain cushion.

Insurance options?

Rep & warranty insurance covers some guarantor risk on acquisitions. Specific bad boy coverage rare. Best mitigation: tight SPE compliance, quarterly covenant reviews, pre-authorized consent process for any material transaction.

Who owns this risk — sponsor or lender?

Construction risks are typically shared: hard-cost overrun owned by sponsor (via completion guaranty), soft-cost and delay risks shared per contract, force-majeure excused but bears owner carry cost. Document risk ownership in the loan agreement and GC contract before closing. Disputes get expensive when roles are unclear. Institutional deals spell out every allocation in writing.