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4.6.3 Restructuring Arrangement

The conclusion of a restructuring agreement is generally premised upon a standstill agreement (i.e. a pactum de non petendo), which is a common feature both of loan restructuring agreements (concluded between a debtor and (all of) its creditors in order to resolve a crisis situation) as well as loan renegotiations (concerning the individual relationship between the bank and the borrower).

The standstill agreement (pactum de non petendo) may be defined as an agreement which has the purpose of granting a deferral of loan payment deadlines which are overdue or have not yet fallen due. Such an agreement does not redeem the loan, but rather amends the terms I of repayment] of original loan agreement, thus preventing the lender from enforcing the – as a matter of principle – overdue loan instalments, the payment of which is deferred until the end of the amortization of the original loan. This means that the overdue loan instalments (overdue interest, overdue capital repayments, and interest on arrears) are repaid by the borrower along with the outstanding debt on a deferred basis, following the original repayment plan in place for the outstanding debt and including, if necessary, a deferral of the final maturity date.

When concluding this arrangement, the parties generally execute an agreement (entitled “Variation of the amortization plan” or “Loan renegotiation agreement” or “Loan restructuring agreement” or again “Loan restructuring agreement with variation to the repayment plan”) in which, after referring in the preamble to the original agreements) grounding the obligation which is to be renegotiated, the borrower acknowledges that it owes certain amounts of money to the lender by way of residual capital, overdue loan instalments (overdue capital and interest payments), and interest on arrears.

As regards default interests, the bank will generally require that the borrower pays such interest (either in full or in part) before concluding the restructuring agreement. Alternatively, a separate agreement may be concluded to regulate their repayment. The payment of default interest (either in full or in part) is an indication of the borrower's actual intention (and financial capacity) to honour his obligations.

The renegotiation agreements concluded by bank and borrower acknowledge the level of the debt and set forth arrangements to govern the repayment of the overdue amounts along with the outstanding debt. Such agreements may come in various forms.

• An agreement that the interest provided for under the loan agreement (which have not changed) will accrue on the overdue amounts instead of interest on arrears. Accordingly, the borrower undertakes to repay the overdue amounts in instalments along with the outstanding debt, following the repayment plan put in place for the outstanding debt. This operation is defined as the “capitalization of arrears”. In order to determine instalment amounts (to repay both the outstanding debt as well as the overdue amounts) which are lower than those originally agreed to and which are sustainable for the borrower, the term of the loan will be extended accordingly.

• An agreement that fixed-rate loan repayments will be made at a level which is sustainable for the borrower (and hence lower than that originally agreed to) until the original maturity of the loan. Instalments paid are allocated by the bank first to the payment of the interest share provided for under the original repayment plan, and thereafter as principal repayments (again as specified under the original repayment plan). The unpaid residual principal on each instalment is then capitalized and, along with the outstanding debt (which is also capitalized), will be repaid by the borrower at the end of the life of the loan either as a lump sum or again by fixed-rate loan repayments. In the latter case, the parties will agree to amend the repayment term for the loan. The amounts capitalized will accrue interest at a rate which is, normally, equivalent to the interest rate for the loan, although if no such agreement is reached interest will accrue at the default rate on these overdue capital instalments.

In these restructuring agreements the parties generally confirm all of the terms, clauses, and conditions contained in the original loan agreement which will not be amended in the restructuring agreement, and will expressly preclude any intention to novate the obligations created under that agreement. Moreover, the guarantors will continue to be parties in order to confirm the securities provided for the original loan. In many cases a clause is included whereby the bank reserves the right to restore all of the original contractual terms and conditions if the borrower fails to abide by the restructuring agreement.

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