A subordination and status quo agreement defines specific or general guarantees, the rights of the younger lender and the priority of those rights. The agreement contains a detailed definition and description of the conditions of subordination and what happens in the event of default or bankruptcy. In a subordination and status quo agreement, the junior lender agrees to inform the senior in the event of a default of the company`s junior loan. A recent example of two companies that have signed such an agreement is Glencore plc, a Commodities trader based in Switzerland, and Bunge Ltd, an American agricultural commodities trader. In May 2017, Glencore took an informal step to buy Bunge. Shortly thereafter, the parties agreed to a status quo agreement that prevents Glencore from accumulating shares or making a formal offer for Bunge until a later date. The main provisions of this type of agreement are: Report and subordination The main provisions of an InterCreditor agreement, which concerns a commercial real estate project, are generally a subordination and postponement. As a general rule, for a lender in a higher or higher position (i.e. the first mortgage), each junior lender must realize that they are behind the previous lender`s security interest on the property. One of the key themes addressed in this type of agreement is what happens when the borrower becomes insolvent. Lenders can, for example, agree to inform each other about the borrower`s default and the possibility of curing the default. A typical recent requirement of a previous lender that complies with the borrower`s default is that the subordinated lender does not take enforcement action without the previous lender`s agreement. In other words, the junior lender must “stand still” and wait and see what the previous lender will do.
On the other hand, the subordinate lender may not want to wait indefinitely before being allowed to take enforcement action. For example, if the previous lender did nothing for an extended period of time after the default, it could affect the lower-tier lender because of the accumulation of interest, both for loans due and for other amounts owed. For example, the subordinate lender will sometimes request that a deadline be set for the status quo (for example. B 90 days). However, if there is a delay, the former lender could lose control of the enforcement process once the deadline has passed. The stop without a time limit (i.e. a “real” judgment) is therefore not a position to which the previous lender should easily forego. During the status quo period, a new agreement is negotiated, which generally changes the original loan repayment plan. This option is used as an alternative to bankruptcy or enforced execution if the borrower cannot repay the loan. The status quo agreement allows the lender to save some value from the loan.