Forbearance Agreement
(Bankruptcy, Loan, and other Debt Workouts)

Summary

This forbearance agreement template is executed between a borrower and its lender. This template includes practical guidance, drafting notes, alternate, and optional clauses. When faced with an existing or impending default under a loan agreement, a company may request that the lender forbear for a limited period of time from taking legal actions that it may otherwise be entitled to take in order to allow the company some time to resolve its financial problems. Key to negotiating any forbearance agreement is a clear understanding of, among other things, the defaults under the loan agreement, the rights and remedies available to the lender, and what the parties are hoping to accomplish during a forbearance period to address the company's underlying business and/or financial problems. In analyzing these issues, the parties will need to carefully review the loan documentation to determine the nature and scope of the defaults and what remedies are available to the lender. Once the parties understand these issues, they can then analyze the company's performance and financial situation to determine the best way to address the defaults, whether through modifications to the loan documents, a refinancing or other restructuring, or otherwise. A forbearance or standstill agreement will state the extent of the lender's concessions, which include the lender's agreement to forbear for a specific period of time from accelerating the debt and from pursuing remedies available under the governing loan documents or law. Forbearance agreements are heavily negotiated and vary depending on the particular circumstances. As a condition to entering into the forbearance agreement, the lender will customarily require the inclusion of various provisions designed to protect its interests. For a full listing of key content covering acquisition financing, see Junior Associate Real Estate Resource Kit (Acquisition Finance). For a full listing of key content covering amendments, consents, and other modifications for loan documents, see Amendments, Consents, and Waivers Resource Kit. For a full listing of key content covering mezzanine financing, see Mezzanine Financing Resource Kit. For additional bankruptcy transactional documents, see Bankruptcy Transactional Resource Kit. For more information on forbearance agreements, see Loan Workouts and Exchange Offers — Forbearance Agreements. For related content and additional resources, see Out-of-Court Restructuring and Liquidation Alternatives Resource Kit.