Standstill Agreement Mortgage

by on Dec.17, 2020, under Uncategorized

The duration of the status quo is generally negotiated because younger and older creditors have competing interests. As a general rule, the subsequent creditor will prefer a shorter status quo period, as it will endeavour to initiate enforcement action in the event of a late payment. However, the chief creditor will generally prefer a longer status quo period, which will give him more time to implement his own strategy for implementing the guarantees. While the duration of status quo periods varies, most are between 90 and 180 days. There are several factors that are specific to the circumstances of each transaction and that may affect the duration of the status quo period, including: During the status quo period, a new agreement is negotiated, which generally changes the initial loan repayment plan. This option is used as an alternative to bankruptcy or enforced execution if the borrower cannot repay the loan. The status quo agreement allows the lender to save some value from the loan. In the event of forced execution, the lender must receive nothing. By working with the borrower, the lender can improve its chances of repaying some of the outstanding debt.

A status quo agreement between a lender and a borrower may also exist when the lender stops requiring a planned interest or capital payment for a loan to give the borrower time to restructure its debts. A recent example of two companies that have signed such an agreement is Glencore plc, a Commodities trader based in Switzerland, and Bunge Ltd, an American agricultural commodities trader. In May 2017, Glencore took an informal step to buy Bunge. Shortly thereafter, the parties agreed to a status quo agreement that prevents Glencore from accumulating shares or making a formal offer for Bunge until a later date. 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. From the point of view of the former lender, the previous lender, if it is late, wants to have control and not that the subordinated lender or anyone else, including the issue, dictate the enforcement actions taken. The former lender therefore requires a status quo agreement from the subordinate lender.

The main provisions of this type of agreement are: as there is usually a lot to negotiate among lenders when a priority structure is at stake, it is important to start working on this type of agreement at the beginning of a real estate financing transaction. The borrower should also be a party to a priority and status quo agreement, if only to recognize its terms.

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