Presenting a live 75-minute webinar with interactive Q&A Loan Forbearance Options and Waivers After Default Crafting Forbearance Agreements That Minimize Lender Liability and Bankruptcy Risks WEDNESDAY, SEPTEMBER 5, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Andrew L. Turscak, Partner, Thompson Hine , Cleveland, Ohio Curtis L. Tuggle, Attorney, Thompson Hine , Cleveland, Ohio The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Loan Forbearance Options and Waivers After Default: Crafting Forbearance Agreements that Minimize Lender Liability and Bankruptcy Risks Curtis L. Tuggle Andrew L. Turscak, Jr. Thompson Hine LLP Thompson Hine LLP Cleveland, Ohio 44114 Cleveland, Ohio 44114 Curtis.Tuggle@ThompsonHine.com Andrew.Turscak@ThompsonHine.com 216-566-5904 216-566-5617 ATLANTA | CINCINNATI | CLEVELAND | COLUMBUS | DAYTON | NEW YORK | WASHINGTON, D.C.
Overview of Presentation Essential Due Diligence I. Reservation of Rights Letter II. III. Agreement: Forbearance or Waiver IV. Specific Drafting Points for Waiver Agreement V. Specific Drafting Points for Forbearance Agreement 6
Essential Due Diligence I. ■ Review the Lender’s most recent asset quality report for the Borrower to understand the history of the credit and contemplated exit strategies. ■ Review correspondence among the Lender and the Borrower, other Credit Parties, Guarantors and Subordinated Lenders. Keep in mind, syndicated facilities will require reviewing correspondence between the Administrative Agent and Lenders. ■ Analyze Credit Agreement, Loan Documents, Security Documents, Guaranty Agreements, and Subordinated Indebtedness Documents to identify any issues that may need to be addressed (e.g., Documentation Errors, execution of Landlord’s Waiver, issuance of Subordination Notice, etc.). 7
Essential Due Diligence (cont.) I. ■ Request UCC-1 search for the Borrower, other Credit Parties and Guarantors. ■ Review filings with the United States Patent and Trademark Office. ■ Request updated title reports and appraisals on real property subject to Mortgages. ■ Request current financial information of the Borrower, other Credit Parties and Guarantors. ■ Identify additional personal and real property of the Borrower, other Credit Parties and Guarantors that may be pledged as collateral. 8
Reservation of Rights Letter II. ■ Formal notice by the Lender to the Borrower, other Credit Parties, Guarantors, and Subordinated Indebtedness Holders of the occurrence of a Default or Event of Default. ■ Express reservation of all of the Lender’s rights and remedies under each of the Loan Documents and applicable law. ■ Specific Drafting Points: Lender’s identification of the Specified Default does not imply the non - ► existence of any other Defaults or Events of Default. Specified Default is continuing and has not been waived by the Lender or ► cured by or on behalf of the Borrower. Lender’s acceptance of payment shall not constitute or be deemed to ► constitute a cure or waiver of the Specified Default. 9
III. Agreement: Forbearance or Waiver ■ Relevant Factors to Consider: Seriousness of the Specified Default – Is it a Financial Covenant Default or ► Payment Default. Overall Stability and Viability of the Borrower’s business. ► Impact the existence of the Specified Default is likely to have on the ► Borrower’s business operations including, among other things, relationships with customers and suppliers. Impact the waiver of the Specified Default may have on implementing and ► achieving the Lender’s overall Exit Strategy (e.g., impairment of the Borrower’s ability to secure refinancing or the Lender’s enforcement of Guaranty Agreements.) 10
IV. Specific Drafting Points for Waiver Agreement ■ Form of Agreement ► Amendment to Credit Agreement (Financial Covenant Adjustments) ► Stand Alone Waiver Agreement ► Letter Agreement 11
IV. Specific Drafting Points for Waiver Agreement (cont.) ■ Key Provisions for Agreement ► Specifically identify the “Specified Default” that Lender is waiving and the conditions of the limited waiver - Sample Provision: Waiver of Specific Defaults. Borrower has notified Lender that Borrower has failed to comply with (a) the covenant set forth in Section 6.11(b) (Consolidated Total Leverage Ratio) of the Credit Agreement for the periods ending June 30, 2010, September 30, 2010, December 31, 2010, March 31, 2011 and June 30, 2011 (collectively, the “Leverage Ratio Violations”), (b) the covenant set forth in Section 6.11(e) (Minimum Consolidated EBITDA) of the Credit Agreement for the periods ending June 30, 2010, September 30, 2010, December 31, 2010, March 31, 2011 and June 30, 2011 (collectively, the "Minimum EBITDA Violations"), and (c) Section 7.01(i) of the Credit Agreement by virtue of Borrower’s failure to pay certain debts as they became due as of the date hereof (collectively, the "Debt Violations", and together with the Leverage Ratio Violations, and the Minimum EBITDA Violations, collectively, the “Violations”). Borrower has requested that Lender waive the Defaults or Events of Default that exist solely by virtue of the Violations (collectively, the “Specified Defaults”). 12
IV. Specific Drafting Points for Waiver Agreement (cont.) Lender hereby waives the Specified Defaults on the condition that, after giving effect to the terms of this Agreement, no Default or Event of Default shall exist under the Credit Agreement or any other Loan Document. This Agreement shall serve as evidence of such waiver. Borrower acknowledges and agrees that (a) the waiver granted herein applies only to the Specified Defaults that relate to the periods set forth in this Section 9 and to no other period, (b) except with respect to the limited waiver granted herein specifically relating to the Specified Defaults, Lender shall not be under any obligation to forbear from exercising any of its rights or remedies upon the occurrence of any Default or Event of Default, and (c) Lender has not established any course of dealing with respect to such limited waiver or otherwise that is inconsistent with the express terms of the Credit Agreement and the other Loan Documents. The limited waiver requested by Borrower and granted by Lender hereunder relates solely to the items specifically set forth in this Section 9. No further waiver has been requested or granted. 13
IV. Specific Drafting Points for Waiver Agreement (cont.) Acknowledgement of Continuation of Liabilities - Sample ► Provision: The obligations of Borrower under the Credit Agreement and other Loan Documents shall, except as expressly modified herein, remain in full force and effect, and shall not be released, impaired, diminished or in any other way modified or amended as a result of the execution and delivery of this Agreement or by the agreements and undertakings of the parties contained herein. Borrower hereby ratifies and confirms each of the Loan Documents to which it is a party and the rights granted thereunder in favor of Lender. Borrower hereby confirms that the security interests and liens granted pursuant to the Credit Agreement and other Loan Documents continue to secure the obligations of Borrower under the Credit Agreement and other Loan Documents, whether presently existing or hereafter arising, and that such security interests and liens remain in full force and effect. 14
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