Standstill period

The standstill period is the time during which a junior creditor waives the right to demand early repayment of its claim or to enforce its security, even though an event of default has occurred with respect to it. The clause appears in the intercreditor agreement that governs the relationship between senior lenders and mezzanine, second lien or subordinated lenders. After a default, the junior creditor gives notice of its intention to accelerate or to take enforcement action. It regains its freedom of action only when the period expires, if the default is continuing. The parties negotiate the duration. In US mezzanine financings, it ranges from 90 to 180 days and ends automatically if the senior debt is accelerated or if insolvency proceedings are opened. It becomes permanent when the mezzanine lender holds an equity stake in the borrower. The senior lender has no standstill, unless the junior has a cure right: during the cure period granted to the junior, 15 days for a payment default and 30 days for another default in common practice, the senior does not enforce its security. For the company, the length of the standstill sets the time it has to reach an agreement with its lenders before a junior creditor takes action. The same word refers to a standstill agreement, by which lenders temporarily suspend their rights during a renegotiation.

A distribution company carries €140m of senior debt and €40m of mezzanine debt, with a standstill of 120 days set in the intercreditor agreement. It misses a mezzanine interest payment on 1 March. The mezzanine lender gives notice of its intention to act on 5 March and can accelerate its claim only from 3 July, unless the senior lenders accelerate their own debt before that date.

• Check the length of the standstill for each type of default: payment, financial covenant, other default.
• Review the events that end the standstill before its term.
• Assess the junior lender’s cure right and its effect on the senior lender’s rights.
• Compare the length of the standstill with the timetable of a conciliation or an accelerated safeguard.