Cured Default Clause

Summary

This credit agreement clause clarifies what happens when a borrower cures the event or condition that resulted in a default or event of default. This template includes practical guidance, drafting notes, optional clauses, and alternate clauses. Without this clause, the treatment of cured defaults in credit agreements can be ambiguous. A default or an event of default often prevents the borrower from taking certain actions under the credit agreement, such as making “permitted acquisitions,” drawing down on a revolving facility, or converting or continuing loans. Engaging in these actions while in default is itself a default. Thus, if a borrower is in a default but not aware of it, then business as usual can create an escalation of additional defaults. In addition, these penalties generally last while an event of default “occurs and is continuing.” However, loan agreements have traditionally been silent as to whether and how defaults can be cured, meaning they can potentially always continue once they occur (such as a misstated representation). This clause is meant to eliminate those ambiguities by clarifying that a borrower can indeed cure defaults and by giving some leeway if a borrower unknowingly engages in these prohibited activities even while in a default. See Events of Default Resource Kit and Event of Default Provisions in Credit Agreements. For a full listing of key content covering a credit agreement, see Credit Agreement Resource Kit.