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Financial Distress 101: What
Happens When Good
Investments Go Bad
Kevin Fisher, Paul Hastings
Josh Myerberg, Morgan Stanley
22 April 2008
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Financial Distress 101: What
Happens When Good
Investments Go Bad Table of Contents
Section 1 Executive Summary
Section 2 Introduction to Distress
Section 3 What Happens in Default
Section 4 Conclusion
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Financial Distress 101: What
Happens When Good
Investments Go Bad
Section 1
Executive Summary
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Financial Distress 101: What Executive Summary
Happens When Good
Investments Go Bad Executive Summary
• The market environment has significantly deteriorated over the past year, triggered in large part
by the subprime crisis, decline in the residential housing sector and an increase in the overall
risk premium (and declining availability of credit)
Economy
• Overall economic environment remains challenging according to leading economic indicators
– Unemployment rate has increased to 5.0%, up from its cyclical trough of 4.4% (a move of
such magnitude has predicted a recession in 10 out of 10 cases in the postwar period with no
false positives and no false negatives, per Goldman Sachs)
– 4Q07 GDP growth of 0.6%
Credit Markets
• All credit markets have been disrupted, with real estate markets hardest hit
– CMBS spreads have gapped out with AAA and BBB- spreads currently trading at 346bps
and 1,571bps, respectively (versus 84bps and 207bps one year ago)1
– CMBS issuance has effectively shut down, with few transactions priced in 2008 thus far
What Could this Mean for Real Estate Owners?
• Higher borrowing costs
• Declining fundamentals
• Falling asset prices
Notes
1. Source: Morgan Stanley Fixed Income Research Securitized Products / US CMBS for the week ended April 16, 2008 1
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Financial Distress 101: What Executive Summary
Happens When Good
Investments Go Bad Economic Headwinds Leading to Recession
• Economic growth has fallen Current U.S. Economic Headwinds U.S. Real GDP Growth
below average during 2007 %
driven in part by the housing
correction and the financial • Consumer-led downturn 5 4.5 4.2 4.5 Forecast
3.7 3.9
markets turmoil – Continuing and intensifying weakness in 4
3.2 3.3
• Current challenges likely to the homebuilding sector 3 2.5 2.2 2.2
persist through 2008
– Negative consumer psychology 2 1.6
1.1
0.8
surrounding housing markets 1
0
– More restrictive lending environment
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008E
2009E
– Decelerating retail sales
Annual Growth Historic Average, 1990 to Present
Source Morgan Stanley forecast as of 10 March 2008
• Ongoing challenges likely to depress
growth in 2008 U.S. Average Monthly Job Formation
Jobs (000‟s)
– Housing market expected to remain
challenging through 2008 and possibly 400
280 Forecast
300 250 264
through 2009 162 172
212
175
200 140
– Weakening labor market
95
100
9 10
– Retail sales growth likely to moderate 0
further due to negative “wealth effect” (100)
(147)
(44)
(200)
from housing
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008E
2009E
– Signs emerging of spillover into
Annual Avg. Historic Average, 1990 to Present
corporate sector
Source Morgan Stanley forecast as of 10 March 2008
2
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Financial Distress 101: What Executive Summary
Happens When Good
Investments Go Bad Tailwinds Limit Downturn
• A bearish case is made Current U.S. Economic Strengths Fed Funds Rate Target
throughout this presentation. %
However, there are several
• We believe the downturn may be modest and 6
important positive catalysts Forecast
for the economy brief in duration 5
• Principal tailwinds • Excesses to be unwound are modest 4
– Continuing global growth – Housing recession already part-way over 3
– Weak dollar – Corporate environment has been lean; hiring 2
– Strong export growth and capital expenditure increases have been 1
modest
– Strong business 0
investment • Government acting quickly and strongly to spur 2004 2005 2006 2007 2008 2009
– Rising consumer incomes growth Source Morgan Stanley forecast as of 10 March 2008
• Risk of much sharper – The Fed has cut rates and engaged in other
slowdown if housing issues actions to relieve stress in the financial U.S. Exports Growth
not contained and global markets %
growth slows
– Congress passed a $165Bn+ economic 16.0 Forecast
11.9
stimulus bill 12.0 8.7 9.7
8.4 8.0
6.9 6.9 6.5
8.0
• Weak dollar providing some support to the 2.4
4.3
4.0
economy 1.3
0.0
– Export growth remains healthy, import (4.0) (2.3)
growth has slowed (8.0) (5.4)
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008E
2009E
– U.S. is a more attractive investment
destination given the weak dollar, Annual Growth Historic Average, 1990 to Present
notwithstanding the current cyclical downturn Source Morgan Stanley as of 10 March 2008
3
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Financial Distress 101: What
Happens When Good
Investments Go Bad
Section 2
Introduction to Distress
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Financial Distress 101: What Introduction to Distress
Happens When Good
Investments Go Bad Distress Scenario 1: Rising Interest Rates
Financial Impact
Examples
Commercial Market
• Refinance of existing Base Assumptions
mortgages
Asset Value: $100
Net Operating Income (NOI) $7.0
EQUITY: $20
Housing Market Less: Debt Service ($80 x 5% interest rate) ($4.0)
• Re-set of Adjustable Rate
Mortgages
Levered Profit (Loss) $3.0
Effects of Distress
DEBT: $80
Interest Rates Increase to 10%
Net Operating Income $7.0
Less: Debt Service ($80 x 10%) ($8.0)
Levered Profit (Loss) ($1.0)
4
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Financial Distress 101: What Introduction to Distress
Happens When Good
Investments Go Bad Distress Scenario 1: Rising Interest Rates
Evidence In the Market
• Credit spreads have widened CMBS Spreads
substantially in the last year Basis Points
– Borrowers having trouble 3,000
refinancing at rates that
2,500 2,500
are covered by operations
2,000 2,100
• In the broader economy,
1,500 1,571
credit markets are 1,071
significantly wider then 1,000
871
historical levels (1) 500 346
– 10Y swap spread: +61 bps 0
Jun-98 Jan-00 Aug-01 Apr-03 Nov-04 Jul-06 Apr-08
current vs +40 bps historic
AAA AA A BBB BB B
average
– Baa corp spread: +310 bps Source Morgan Stanley Fixed Income Research Securitized Products / US CMBS
vs +240 bps
– Junk bond yield spread: ARM Re-Set Schedule
$Bn
+850 bps vs +620 bps
• Housing market is facing 350 325
300
$1.2 trillion of ARMs re- 300
setting in the next 5 years 250 220
200
200 175
150
100
45
50 30 23 25 15
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source Deutsche Bank / Loan Performance, UBS
Notes
1. Source: Merrill Lynch on 03/20/08 5
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Financial Distress 101: What Introduction to Distress
Happens When Good
Investments Go Bad Distress Scenario 2: Falling NOI
Financial Impact
Examples
Commercial Market
• Orange County office market Base Assumptions
Asset Value: $100
• Retail market / retailer
bankruptcies
Net Operating Income $7.0
EQUITY: $20
Housing Market Less: Debt Service ($80 x 5%) ($4.0)
• Falling wages
Levered Profit (Loss) $3.0
Effects of Distress
DEBT: $80
NOI Drops by 50%
Net Operating Income ($7.0 x 50%) $3.5
Less: Debt Service ($80 x 5%) ($4.0)
Levered Profit (Loss) ($0.5)
6
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Financial Distress 101: What Introduction to Distress
Happens When Good
Investments Go Bad Distress Scenario 2: Falling NOI
Evidence In the Market
• Though real estate National Retail Vacancy Rates Orange County, CA Office Vacancy Rate
fundamentals seem to be % %
holding up generally, 12 18
selected property types /
geographic areas are 11
15
projected to decline 10
– Orange County has 9 12
suffered a 600 bps
increase in vacancy during 8
9
the last year primarily due 7
to tenant bankruptcies / 1997 1999 2001 2003 2005 2007 2009 2011 6
downsizing from sub-prime Vacancy Rate 1996 2000 2004 2008
mortgage lenders (New
Sources PPR, Reis, TWR, Morgan Stanley calculations
Century, Ameriquest)1
• Retailers could be put under
pressure if consumer Residential Market Could be Impacted by Rising Unemployment
%
economy continues to lag
– Sharper Image bankruptcy 7
and rumors from Linens „N 6.0
6 5.8
Things could foreshadow 5.5
5.3
5.5
additional tenant softness 4.9 5.1
5 4.7 4.6 4.6
4.5
– Retail vacancies are on the 4.2
4.0
upswing 4
• In the residential sector, 3
individual incomes could 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E 2009E
decline as unemployment Unemployment % Historic Average, 1990 to Present
rises
Source Current Population Survey, Moody’s Economy.com, Morgan Stanley
Notes
1. Availability rate source: CBRE 7
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Financial Distress 101: What Introduction to Distress
Happens When Good
Investments Go Bad Distress Scenario 3: Declining Values
Financial Impact
Examples
Commercial Market
Asset Value at
• Refinance at lower basis Base Assumptions
Closing: $100
• Sale values that require
incremental cash
investments Net Operating Income $7.0
EQUITY: $20
Cap Rate 7.0%
Housing Market
• Home price declines / short DEBT: $80
sales Implied Asset Value $100
New Asset Effects of Distress
DEBT: $80
Value: $70
Cap Rates Increase from 7% to 10%
Net Operating Income $7.0
Cap Rate 10.0%
Implied Asset Value $70.0
8
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Financial Distress 101: What Introduction to Distress
Happens When Good
Investments Go Bad Distress Scenario 3: Declining Values
Evidence In the Market
• Declining values effect owner Projected U.S. CMBS Issuance and Office Building Capital Appreciation
returns but cause distress $Bn Index Price (1997 = 100%)
when assets are worth less
then the debt, particularly 250 230 150%
203
when a refinance is imminent 200 140%
169
– Primarily a concern for
150 130%
short-term debt from
assets bought at “peak” 100 78
93
120%
74 68 70
pricing (i.e., Macklowe) 57
47 52
50 37 110%
– 5, 7 or 10-year debt
maturities potentially at 0 100%
risk but values have 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E
increased Source Morgan Stanley and NCREIF
• Landlords facing a decision
about whether to support a National Home Price Trends
project that requires more Annual Growth %
capital when values have
declined may also push 20%
14.6% 14.7%
properties in default prior to 15%
9.8% 10.6% 10.7%
a refinance 10% 7.6% 7.1% 8.2% 7.7%
5.8%
4.5% Average 5.0%
• Through March 2008, home 5% 1.6% 2.6% 2.1% 2.1%
0.1% 0.1% 0.2%
prices have declined 11% 0%
nationally year-over-year1 -1.0%
-5%
– If homeowners need to -10%
-8.9%
refinance or decide to sell
-15%
because of job 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
displacement / relocation,
Source Standard & Poor's, Fiserv Inc. and Macro Markets LLC
home may be in pushed
into default
Notes
1. Source: Case-Schiller 9
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Financial Distress 101: What Introduction to Distress
Happens When Good
Investments Go Bad Other Examples of Distress
Distress scenarios can also occur in less obvious situations:
• Technical Defaults
– Tripping loan covenants that may / may not be an economic default but
are used by banks to protect their interests if the borrower’s business
begins to deteriorate
– Example – net worth covenants for homebuilders or banks while asset
values decline
• Development Projects
– Projects that have high operating leverage and require substantial fixed
costs before a liquidity event
– Example – condo projects
In all of these cases, the property owner has an incentive to walk away
from the property, but this is not as easy as it sounds…
10
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Financial Distress 101: What
Happens When Good
Investments Go Bad
Section 3
What Happens in Default
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Signs of the Real Estate Loan in Distress
• Monetary defaults
• Covenant defaults
• Real estate taxes delinquent
• Property or business operating at a deficit
• Capital improvement needs
• Investors unwilling to make capital contributions
• Subordinate liens, judgments
• Review of financial reports – change in financial circumstances, cash flow
11
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Initial Review
• Review legal documents
– Structure
– Completeness
– Defects
– Perfection
• Evaluate how loan has been administered
– Course of conduct
– Representations
– Memos, e-mails in file – “Smoking Guns”
• Understanding lender’s goals and capabilities
– Benefits of modification (short term, long term)
– “First loss is smallest loss”
– Lender’s capacity to own, manage or liquidate
– “ORE” portfolio
– Bank regulatory issues
– Evaluate long term market conditions
– Explore asset sale prospects
12
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Initial Review (cont’d)
• Understanding borrower’s goals and capabilities
– Replacement franchisor, operator, tenant
– Management skills
– Reputation – honesty
– Capital infusion – from borrower or equity source
– Guarantors’ commitment to transaction or business
– Guarantors’ financial condition
• Understanding the relevant market
– Value of collateral and borrower’s business
– Marketability of collateral
– Business market trends
– Leasehold market trends
– Debt marketplace
– Borrower’s refinance or sales prospect
13
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Initial Review (cont’d)
• Understanding the collateral (realty and personalty)
– Condition
– Deferred maintenance
– Environmental considerations
– Appraisals (access to conduct)
– Evaluate project finances
– Potential for commingling or diversion of cash flow
– Leases
– Competing creditors
14
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Loan Restructurings
Strategies, Techniques and Objectives
• Pre-Workout Agreement/Standstill Agreement
– Preserves status quo
– Sets ground rules for discussions
– Either party can terminate discussions at any time
– Protects lender against waiver, oral modification arguments
– No oral agreements can be made
– Lender’s goal: obtain borrower’s acknowledgement of debt and waiver of
defenses
– Loan documents in force
– Without prejudice to rights and remedies
15
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Loan Restructurings (cont’d)
Strategies, Techniques and Objectives
• Background considerations
– Identify all necessary parties, sources of funding, credit enhancements
(L/C issuers, guarantors, mezzanine lenders)
– Identify, negotiate and resolve all material business points early to avoid
borrower’s disguised delay tactics
– Engagement of financial consultants or turnaround specialists
– Beware oral modification or waiver during negotiations
– Prepare and execute detailed term sheet (subject to credit approval)
– Issue a loan commitment, if appropriate
– Need a formal instrument of modification
– Need for requisite corporate or partnership authority
– Ratification of loan documents, guaranties
– Obtain subordination agreements (or discharge of liens)
– Title insurance – payment of taxes
– Always be aware of intercreditor issues
16
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Loan Restructurings (cont’d)
Strategies, Techniques and Objectives
• To avoid:
– Unrealistic optimism about borrower, borrower’s business, the property or
the market place
– Needlessly complex strategies or restructure models
– Strategies that ignore essential parties
– Strategies or models where lender has all downside and borrower has all
upside (and vice versa)
17
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Loan Restructurings (cont’d)
Strategies, Techniques and Objectives
• Opportunity for enhancements
– Concessions or contributions from other lenders/creditors
– Concessions or contributions from franchisor
– Additional collateral (shares of stock, partnership interests, business
assets, reserve accounts)
– Beware pledge of assets by non-obligors (consideration, fraudulent
conveyance issues)
– New or additional guaranties – increasing scope of guaranteed obligations
– Cure legal or document deficiencies
– Obtain additional loan covenants or monitoring rights
– Control of project revenue – cash collateral – Cash Management
Agreement – Lock Box/Control Agreement
– Obtain waiver and release of defenses and counterclaims
– Ratification of indebtedness
– Formal extension of matured obligations
– Preserve or improve underlying collateral (capital expenditures)
18
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Alternative Restructure Models
One Lender and Multi-Lender Transactions
• For multi-creditor transactions
– Awareness of concessions, contributions and business requirements
by other creditors
– Relationships among creditors – priority
– Lien subordination/Intercreditor Agreement
– Structural subordination
– Deferral notes and debt forgiveness
– Beware: tortious interference with contract
– Guaranty coverage/collateral coverage
19
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Alternative Restructure Models (cont’d)
One Lender and Multi-Lender Transactions
• Possible scenario 1: reinstatement of loan – cure short term default
– Justification for default
– Amend terms or covenants/back in compliance
• Possible scenario 2: Discounted Repayment Agreement – as an exit
strategy
– Tied to market conditions, lender’s business objectives, target market
– Example – $10mm debt – accept $9mm in six months or $8mm
immediately
– In non-recourse loan, discount needs to give borrower incentive to pay the
discount – possible equity recapture by borrower
– In recourse loan – discount in exchange for release of note and guaranty
– Never release note or guaranty until payment or consensual asset
liquidation has occurred
20
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Alternative Restructure Models (cont’d)
One Lender and Multi-Lender Transactions
• Possible scenario 3: short term forbearance agreement
– Six months to cure identified business problem – suspension or reduction
of debt service payments
– Waiver of covenant defaults
– Waiver of defenses, acknowledgement of debt, release of claims
• Possible scenario 4: longer forbearance (i.e., one to two years) tied to
– Shortening maturity
– Economic concessions
– Discounted repayment built into restructure
– Additional collateral included in forbearance agreement
– Increasing number of guarantors or scope of guaranty
– Accrual of default rate or interest shortfall, with waiver upon performance
21
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Alternative Restructure Models (cont’d)
One Lender and Multi-Lender Transactions
• Possible scenario 5: Substantive Loan Restructure
– Restructure loan to conform to market (lower interest rates, change or
eliminate amortization, less burdensome financial covenants)
– Reduce interest rate or principal debt if borrower infuses cash, stabilizes
business, brings in beneficial business partner or adds collateral
– Principal debt repayment plan with contractual incentives (e.g., $10mm
loan – restructure at $9mm; pay down $2mm; forgive $1 mm)
– Tax issues
– Cancellation of indebtedness income
– Intercreditor arrangements
• Possible scenario 6: additional collateral/guaranties
– As consideration for business concessions by lender
– Additional collateral and/or guaranties protect lender against downside,
further business erosion and insolvency
– Expansion of existing limited guaranties; guaranty of tranches of debt
22
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Alternative Restructure Models (cont’d)
One Lender and Multi-Lender Transactions
• Springing guaranties – recourse events
– Interference by borrower or guarantor with legal remedies
– Diversion of cash flow
– Non-payment of real estate taxes
– Fraud
– Mismanagement
– Environmental liability
– Bankruptcy (“by or against”)
– Material alteration of collateral
• Lender’s strategy – use workout to fix loan, collateral and perfection
defects
– Offer concessions/forbearance in effort to fix collateral or perfection
defects (illustrations – internal audit discloses financing statements never
filed)
– Obtain acknowledgement of debt/waiver of defenses
– Obtain remedies – certainty, finality, predictability – finishes the process
23
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Alternative Restructure Models (cont’d)
One Lender and Multi-Lender Transactions
• Deed in Lieu – consensual turnover or liquidation of assets
– Business decision to take back or market the collateral
– Predictability
– Speed
– Deed or consensual liquidation – faster than court remedies
– Note: need foreclosure to eliminate subordinate liens on real estate
• Lender’s sale of the distressed loan to a third party
– Speed, certainty, finality, elimination of further risk of loss
– Target market considerations
– The third party purchaser bargains for long term upside value
– Public relations, lender liability considerations
– Ready marketplace – purchasers of distressed debt
– “Loan to Own” strategy
24
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Creditor Remedies and Enforcement Actions
• California has unique rules regarding real property collateral remedies
– Judicial foreclosure
– Non-judicial foreclosure
– “One Action Rule”
– “Mixed Collateral Rules”
– Blend of rules in UCC and other California statutes
• Potential impact on:
– Ability to pursue deficiency
– Redemption rights of borrower
– Ability to pursue guarantors
– Ability to foreclose on collateral
• Mezzanine loans:
– Structural subordination
– Can become owner by foreclosure
– Must then deal with senior lender
• Creditors should be extremely cautious when exercising remedies
25
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Financial Distress 101: What What Happens in Default
Happens When Good
Investments Go Bad Creditor Remedies and Enforcement Actions (cont’d)
• Bankruptcy
– Automatic stay – stops creditor remedies
– “Breathing room” to attempt reorganization
– “Single asset real estate”
– Single commercial project with no other business/assets
– 90 days to propose plan or resume monthly interest payments
– Otherwise automatic stay lifted
– Not a panacea – the project still needs to work
26
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Financial Distress 101: What
Happens When Good
Investments Go Bad
Section 4
Conclusion
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Financial Distress 101: What Conclusion
Happens When Good
Investments Go Bad Externalities
Sustainability
While distress has a significant economic impact on both the lender and
borrower, bad projects can have much broader implications…
• Sustainability
– Local impact – swimming pools rotting in Sacramento
– National impact – degradation of land for unnecessary projects
– “Exurban sprawl is especially costly. Low-density residential communities
developed at the fringes of metropolitan areas are often far from places of
employment, as well as from civic, commercial and recreational destinations.
Consequently, such development results in more road congestion, more carbon
emissions and adverse climate change. The public services and the
infrastructure needed to support low-density fringe development are
unavoidably inefficient, both functionally and financially.” – The Washington
Post (April 12, 2008)
– Global impact – natural resources such as steel / timber / petroleum
products used to build houses
27
L:\MSR\MSRE West Admin\ULI - Market Distress Presentation\ULI - Market Distress Presentation v8.ppt\A2XP\15 APR 2008\6:43 AM\38
Financial Distress 101: What Conclusion
Happens When Good
Investments Go Bad Externalities
Infrastructure
• Infrastructure
– Strain on infrastructure from unnecessary sprawl:
– “There is a silver lining. Slowing growth in Southern California signals that the
overheated market is in fact over and that the long, difficult process of
correction, in which prices return to sustainable levels, is under way. If local
officials are smart, they'll take advantage of sprawl's apparent stall to plan more
carefully for future growth. In planning terms, think of this as a strategic pause,
a moment to concentrate on water supply, traffic, school construction,
infrastructure -- all of which tend to be brushed aside in the press of expansion
but which need and deserve the long look that this moment may allow.” – LA
Times (March 24, 2008)
– Decay of communities that provides services that cannot be supported by
local tax base from a half-developed MPC or struggling in-fill locations
– “The [Worchester, MA housing inspector team] is a kind of frontline scout
platoon in the city's ongoing battle against urban decay, a fight that got much
tougher during the last year, as the mortgage meltdown sent foreclosure rates
soaring in Worcester and across the country…[Recent] legal action is part of
the city's strategy to get mortgage companies and banks…to take responsibility
for the upkeep of houses that end up in their portfolios through foreclosure.” –
Worcester Telegram & Gazette (April 13, 2008)
28
L:\MSR\MSRE West Admin\ULI - Market Distress Presentation\ULI - Market Distress Presentation v8.ppt\A2XP\15 APR 2008\6:43 AM\39
Financial Distress 101: What Conclusion
Happens When Good
Investments Go Bad Externalities
Workforce Housing
• Workforce Housing
– Lower home prices have resulted in increased affordability but capital
remains scarce for new projects:
– “Affordable housing is the latest victim of the credit crunch that is reverberating
through financial markets. Projects are being canceled because some of the
nation's largest financial companies, including Fannie Mae, Freddie Mac and
Bank of America, have scaled back their participation in the federal
government's largest and most prolific affordable housing tax-credit program,
designed to boost construction of below-market-rent apartments.” – Wall Street
Journal (March 12, 2008)
– Irresponsible product programming exaggerates impact
Responsible phasing and growth plans along with thoughtful/ holistic
analysis on the front-end of a project can often prevent many of
these externalities
29
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