Exercising Remedies After a Default: Forbearance Agreements and Other Workout Options
This CLE course, featuring Koley Jessen's Brian Koenig, will provide lender's counsel with a framework for responding to commercial loan defaults. The panel will discuss remedies typically available under loan documents, creative approaches to deal with troublesome loans, and issues the lender should consider before proceeding with acceleration and collection. The panel will also discuss forbearance agreements and loan restructuring and how they can best be used to rescue the transaction, prevent bankruptcy or litigation, and set up the lender for the best possible outcome if bankruptcy or litigation occurs.
When a commercial loan goes into default, there are typically several rights and remedies available to the lender. They include acceleration of the indebtedness, drawing any letters of credit, exercising set-off rights concerning any borrower funds held by a lender, refusing additional loan advances, charging default interest and make-whole premiums, exercising rights under cross-default provisions, foreclosing on secured collateral, seeking the appointment of a receiver, enforcing an assignment of leases and rents, and suing the borrower and any guarantors to collect on the debt.
Immediately exercising such remedies, however, may not be in the lender's best interest. A forbearance agreement can provide a roadmap for the parties to reinstate the loan agreement--either on its original or modified terms--to clarify or eliminate disputes and set expectations for a consensual restructuring and allow a lender to improve its position if the borrower defaults under the restructured loan. It gives the borrower time to resolve its financial problems and the lender an opportunity to cure any deficiencies with its loan documents and time to evaluate its options and formulate a strategy to maximize its recovery.
As a more permanent solution, the borrower and the lender can restructure the borrower's debt. But the loan modification process may involve much more than a change to the interest rate or an extension of the loan term. The lender may require additional collateral or a new guarantor (or new recourse obligations). Updated asset valuations and new opinions might be necessary. There are business, tax, and regulatory considerations that could also impact the lender's decision to modify the loan.
Listen as the panel provides insights for lenders' counsel on how best to pursue remedies after default, and in the alternative, how to execute a successful and efficient workout strategy.
- Exercising loan remedies after default
- Pre-action plan: initial fact gathering and development of strategy
- Dos and don'ts of initial communications and meetings with borrower
- Issues to be aware of concerning specific types of collateral
- Forbearance agreements
- Lender and borrower benefits
- Difference from loan modification/amendment
- Standard terms
- Judgment/foreclosure decree
- Involuntary bankruptcy
- Assignment for benefit of creditors
- Deed in lieu
- Self-liquidation by borrower
The panel will review these and other noteworthy issues:
- What are the first steps a lender should take after a loan default?
- How should a lender approach communications with a borrower?
- When is a forbearance agreement a desirable alternative to full-blown enforcement of remedies?
- What terms are typically included in a forbearance agreement?
- What are some pitfalls to consider when entering into a loan modification?