Standstill agreement

A standstill agreement is an agreement under which one or more creditors refrain, for a defined period, from exercising their rights against the borrower: acceleration, enforcement of security, legal action. It gives the company time to negotiate a refinancing, an amend and extend or a restructuring. This forbearance rests on the contract alone and binds only the signatory creditors. Its standard clauses cover the scope of the forbearance and the actions that remain permitted, the duration and the early termination events, the reservation of the lenders’ rights and the acknowledgement of existing defaults, information and data access undertakings, payment and cash control mechanisms, and consent majorities. When the agreement expires or an early termination event occurs, the lenders regain the ability to act on the reserved defaults. French law offers a relay through the courts. In conciliation, the conciliator asks creditors to suspend the enforceability of their claims; the judge has the power to defer or reschedule the claims not yet due of a creditor that refuses, within the limit of the duration of the mission (article L. 611-7 of the French Commercial Code). For a company that owes €20m to €300m to several lenders, the standstill prevents an isolated creditor from accelerating its claim during the negotiation with the others.

A group in breach of covenant on a €90m unitranche signs a four-month standstill with its two lending funds. The funds suspend acceleration. The group continues to pay interest, delivers a weekly cash flow forecast and appoints an adviser to prepare a refinancing plan.

• The duration and the events that end the agreement before its term.
• Whether interest payments continue or are suspended.
• Information undertakings: cash flow forecasts, data access.
• The reservation of the lenders’ rights over existing defaults.