Waiver
(Bankruptcy, Loan and Other Debt Workouts)

Summary

This waiver template is executed between a borrower and its lender. Waiver agreements are generally used when a company experiencing financial difficulties commits a one-time covenant breach that the lender determines will not materially prejudice its ability to receive payment on the loan. This template includes practical guidance and drafting notes. Waiver requests generally arise in the context of borrower defaults. Usually, there are two types of default that lead to a waiver requests: (1) payment defaults, including, nonpayment of principal, interest, fees, or other amounts, or late payments of monetary amounts and (2) covenant or technical defaults, where the borrower or another obligor has failed to comply with a covenant or undertaking in the documentation. Lenders are likely to approach these two types of defaults in different ways. Payment defaults can significantly impact lenders because such defaults occur when the borrower does not pay amounts due (nonpayment) or late payment of any amount due. If a borrower fails to make a payment (particularly of principal or interest) and this is attributable to a basic lack of funds, lenders often accelerate the debt unless the borrower can compel the lenders to grant a waiver. If the borrower is creditworthy, a lender might decide to grant the borrower a waiver with a view to getting it back on its feet. However, the terms of any such waiver are likely to be very restrictive and the lenders will undoubtedly impose conditions on its grant of the waiver. Covenant or technical defaults are breaches of covenants in the documentation besides payment obligations. When dealing with a borrower in technical default, lenders are usually more inclined to explore their options before terminating the loan and enforcing their remedies. Such technical defaults commonly arise out of noncompliance of affirmative, negative, or financial covenants and can be of varying degrees of seriousness. For example, the lenders may agree to waive a breach of a borrower's obligation to provide a compliance certificate on a particular date if the borrower undertakes to do so within a period of time agreed by the parties. That said, lenders should be wary of borrowers who are repeatedly late or suddenly delay providing information, particularly if they have been reliable in the past. On the other hand, a breach of certain covenants can give lenders significant cause for concern. For example, lenders tend to utilize financial ratios or minimum capital requirements to monitor the borrower's financial health. Any breach of these provisions will cause concern among lenders. Lenders will rarely grant borrowers waivers of such breaches. A waiver agreement specifies the default or event of default that occurred under the loan agreement and provides that the lender agrees to waive the specified default and not to pursue its rights and remedies against the borrower. As part of the waiver, the lender may require the inclusion of various provisions designed to protect its interests. A waiver by the lender of a default or event of default will allow the relationship between the lender and the company to continue unimpeded despite the occurrence of a default under the agreement. This waiver primarily contemplates a covenant default waiver as opposed to a payment default waiver (but can be revised for purposes of a payment waiver). For an alternate version that can be used in either scenario, see Waiver Agreement.. For a full listing of key content covering events of default, see Events of Default Resource Kit. For additional workout resources, see Out-of-Court Restructuring and Liquidation Alternatives Resource Kit. For a full listing of key content covering construction, see Commercial Real Estate Acquisition Loan Resource Kit. For a full listing of key content covering acquisition financing, see Junior Associate Real Estate Resource Kit (Acquisition Finance). For more information, see Loan Workouts and Exchange Offers — Waivers.