Standstill Agreement Lending

A standstill agreement is a contract that contains provisions governing how a bidder of a company can buy, sell or vote shares of the target company. A standstill agreement can effectively delay or stop the hostile takeover process if the parties cannot negotiate a friendly agreement. In real estate development, it is sometimes necessary for a borrower to receive funds from more than one lender. In this case, a priority structure will likely be put in place among the lenders involved in the transaction. Often, at the request of the lender in a position of absolute priority (the « previous lender »), a « priority » or « subordination agreement » agreement is required by any « subordinated lender » that ranks behind the previous lender. During the negotiation process, the agreement may also stipulate that the various parties are not able to conclude transactions with other parties until negotiations have been concluded. As a rule, senior Lender uses standstill provisions to deviate in case a company is only late in the junior loan if it limits the probability of this default as relatively high. Senior Lenders also requires a standstill clause if junior Lenders` shares may compromise Senior Lenders` guarantees or refund. For example, the loan agreement for a junior loan may provide that the lender has the right to access the first position for certain guarantees in order to heal the failure of a business. This would compromise the guarantee position of the priority lender. During the standstill period, a new agreement is negotiated, which usually changes the initial repayment plan of the loan. This is used as an alternative to bankruptcy or enforcement if the borrower cannot repay the loan. The status quo agreement allows the lender to save a certain value from the loan.

In case of enforcement, the lender cannot receive anything. By cooperating with the borrower, the lender can improve its chances of recovering some of the outstanding debt. In the banking world, a status quo agreement between a lender and a borrower terminates the contractual repayment plan of a borrower in difficulty and forces the borrower to take certain steps that the borrower must take. Suppose a small business turns to a bank to apply for a line of credit. The company has already obtained a mortgage through another bank on its office building. If the bank approves the line of credit, it signs a subordination agreement. The agreement submits the lender`s claims on the guarantees to the bank that grants the line of credit in the event of a delay in the company`s loan. Some exceptions may be provided for in the agreement, but on the other hand, all acts are prohibited. The junior lender can inform the senior Lender of its intention to take action and the standstill agreement expires after 150 to 180 days. A subordination and standstill agreement defines the specific or general collateral used, the junior lender`s rights to payments and the priority of those rights. The agreement contains a detailed definition and description of the conditions of subordination and what happens in the event of default or bankruptcy. In a subordination and status quo agreement, the junior lender undertakes to notify the senior Lender in the event of the company`s default with the junior loan.

Standstill agreements can be used to direct and dictate how a bidder can manage the shares of their target business, including divestiture, purchase or voting. Suppose a business gets a line of credit when it already has long-term credit from a bank. This line of credit includes a subordination agreement or clause as part of the loan documents. . . .