Distressed Loan Workouts: How Equity Cure Rights Work, Negotiating Loan Restructuring and Forbearance Agreements

Equity cure rights give the borrower, or the borrower’s financial sponsor, the right to contribute equity upon a default of an EBITDA-based financial covenant to increase its calculated earnings before interest, tax, depreciation and amortization.

Lenders will seek to negotiate certain restrictions on the equity cure right, namely limits on the source of capital, use of the proceeds, amount, frequency/timing and impact of prepayment.

Post-default, both the lender and the borrower must execute a work-out strategy that includes either a forbearance agreement or a loan restructuring agreement.

Listen as our authoritative panel of finance attorneys guides you through strategies for restructuring a distressed loan, focusing on equity cure rights and loan modification and restructuring techniques. The panel will provide insights for both lenders and borrowers to execute a successful and efficient workout-out strategy.

1. Equity cure right structures, impact on EBITDA
   1. Restrictions and limitations on equity cures
      1. Type of equity
      2. Source of capital
      3. Use of proceeds
      4. Amount
      5. Frequency/timing
      6. Impact of prepayment
2. Post-default alternatives
3. Forbearance agreements
4. Restructuring agreements

The panel will review these and other key issues:

• What benefits do equity cure right provisions provide borrowers in sponsor-backed deals and what restrictions do lenders seek to impose on the right to cure?
• What is the difference between forbearance and restructuring—and which option is best for the lender or the borrower?
• What steps can the lender take during a loan workout to strengthen its position and minimize its risks in bankruptcy or foreclosure sale?