Standstill Agreement Lending

Whether or not the previous lender makes any compromise on the true status quo agreement depends, among other things, on the nature of the subordinated loan. In general, it is all the less likely that the previous lender will accept a compromise as the subordinated loan moves closer to “subordinated equity” (. B for example, a loan from a borrowing company). In banking, a status quo agreement between a lender and a borrower terminates the contractual repayment plan of a struggling borrower and imposes certain steps that the borrower must take. A status quo agreement is a contract that contains provisions governing how a bidder in a company can buy, sell or vote shares of the target company. A status quo agreement can effectively paralyze or stop the hostile takeover process if the parties are unable to negotiate a friendly agreement. In the event of an acquisition, a status quo agreement can be used to terminate a hostile transaction that does not provide favourable conditions for both parties. Since the bidder will have access to the company`s financial documents, a status quo agreement will prevent any possible use. Status quo agreements could also take other steps to protect the company. You can set a deadline. B during which the bidder cannot attempt to obtain the acquisition. Senior lenders generally use status quo provisions to protect themselves if a business is only late with the junior loan if they feel the likelihood of default is relatively high.

High-level lenders also require a non-status quo clause when the actions taken by the junior lender may jeopardize the guarantee or repayment of loans from the priority lender. For example, the loan agreement for a junior loan may stipulate that the lender has the right to switch to certain guarantees at the first position to allow it to heal a company`s failure. This would compromise the security position of the primary lender. A status quo agreement prohibits subordinate lenders from seeking legal action against a borrower who defaults with a loan. The status quo agreement generally stipulates that junior lenders are prohibited from acting for up to six months after the borrower defaults. This delay allows the primary lender to take action in the event of a delay and gives the borrower time to enter into other agreements, such as. B a new repayment plan or bankruptcy filing. A few exceptions are included in the agreement, but for the rest, all actions are prohibited. The junior lender can inform the senior of their intention to take action and the status quo agreement expires after 150 to 180 days. Status quo agreements can be used to adjust statutes of limitations. Today, it is not uncommon for status quo agreements to be used to extend or eliminate statutes of limitations altogether.

The main provisions of this type of agreement are: What often happens is that one of the lender`s loans is subordinated to the other. In this case, an agreement is developed to manage both loans at the same time, one being a priority lender and a subordinated lender. In the development of real estate, it is sometimes necessary for a borrower to receive money from more than one lender.

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