Loan Workout Agreement Sample

While pre-training agreements are generally applicable, lenders are cautioned to ensure that these agreements adhere to the general principles of contract formation, including consideration. The German American Capital Corporation v. Moosup Road Limited Partnership, 1998 WL 405090 (Sup.Ct. Conn. 1998) held that a pre-training agreement was not applicable for lack of consideration and argued that „the agreement does not impose an obligation on the [lender] and that a bilateral contract requires reciprocity of the obligation.“ The Tribunal added that „the pre-negotiation agreement was so uncired that it was not applicable as a bilateral agreement.“ According to the Tribunal, the lack of reciprocity can be avoided „if the lender has a partial benefit, such as leniency or the negotiations themselves.“ As a result, the lender`s advisor should ensure that the pre-training agreement developed is consistent with the general contract formation rules. Pre-training agreements can also be beneficial in establishing ground rules for negotiations and identifying those eligible to negotiate on behalf of each party. The implementation of this framework can help to keep discussions focused and more productive. These agreements are also useful in obtaining estoppels from the borrower that prevent the borrower from making certain defences in the event of litigation. For example, the lender may obtain written confirmation from the borrower of defaults in connection with the loan documents and their essential nature, in order to deter the borrower from doing so, the same at a later date in Swiere. Lenders can also obtain confirmation from the borrower that the loan documents are fully in effect and effective, thus preventing a subsequent argument that the agreements are not applicable.

Finally, if the training discussions prove unproductive, the pre-training agreement can establish a plan to end the discussions in an orderly manner. The key to negotiating an indulgence agreement is a clear understanding, among other things, of defaults in the loan agreement, the rights and remedial measures available to the lender, and the objectives that the parties intend to achieve during a reduction period to address the underlying business and/or financial problems of the business.