Cure Period Loan Agreement

If a borrower believes that a default is likely, the borrower should discuss the situation in advance with the lender in order to request an amendment or waiver. A lender is probably more receptive to helping to work on a solution before a default occurs, as most lenders would rather have an organizing loan than participate in a restructuring or close guarantees, as these extreme results are costly and tedious and can deprive the lender of control, making the outcome uncertain. Borrowers should keep in mind that if the lender is willing to grant such an amendment or waiver, this is usually done at the borrower`s financial cost or requires certain concessions from the borrower. Predictably, lenders refuse to include this language, but the efforts of these borrowers have sparked discussion and questioned assumptions about when and how defaults can be cured in accordance with the express provisions of a typical credit contract that does not have this cured default provision, either as an interpretive contractual issue or in practice. In several recent transactions, borrowers have attempted to include in their credit contracts an interpretive provision “Cured Default” that imposes how to cure certain types of payment cases. In the case of action to be taken on a specified date or date, this provision specifies that, if the borrower takes this action at a later date, even if, at the expiry of the period, the default is considered to be healed. If the borrower performs a prohibited act and that act is authorized at a later date, or if the borrower later terminates it, this provision stipulates that the default will then be cured without giving up or any other action of a lender. The language also provides for automatic and simultaneous healing of default settings or successive delay events that would not have occurred if the initial event of the default outage had not occurred (for example. B a representation that was not true because of the initial default).

(a) Type of equity – Some capital reserves go so far as to prescribe the exact nature of the equity that the borrower can issue to obtain equity. The use of common shares as an applicable capital guarantee is the most common. If the borrower is able to negotiate the use of preferred shares, the lender would generally dictate the characteristics of those shares by providing that all the negotiated characteristics of those shares, such as convertibility. B, preferential dividends, withdrawal, maturity, etc., will only be triggered after a certain maturity of the loan. The goal is to ensure that the lender`s payment priority is not triggered accidentally by equity, the elements of the debt. (e) Mandatory limits – In addition to capping the dollar of equity, the lender could also limit the frequency of use of the equity cure to a prescribed number of time during the term of the loan, or prevent its use for successive trial periods. Like the cap on the amount of capital that can be obtained, the objective is to prevent the borrower from using the equity cure as support for his or her questionable activities. Delay events are often reported only in an account sheet, resulting in the events in the standard section being negotiated as part of the loan agreement.

Lenders generally want default events to be defined as much as possible, while borrowers will attempt to define the list of events as closely as possible, in order to continue their operations without inappropriate intervention and to limit the circumstances that could lead to a default. The borrower`s ability to negotiate less stringent default events depends on many factors, including the business objective underlying such demand, the creditworthiness of the borrower and general market conditions. In the event of a delay in payment and late transmission of information or taking another measure, a lender can prove that it has in fact

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