In one sentence
The negotiated process of resolving a troubled loan short of foreclosure, through restructuring, paydowns, additional collateral, or a managed exit.
The longer version
A workout tries to maximize recovery on a loan that is not performing, using tools from term extensions to principal paydowns to note sales. It is document-intensive and relationship-intensive at once.
The workout file gets scrutinized later by auditors and, on losses, by examiners. A clean record of what was offered, agreed, and done is the difference between a defensible decision and a finding.
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