A subordination agreement is a document that subordinates one party`s claim to the claims of another party. Subordination usually occurs when a borrower wants to refinance a first loan, for example. B a mortgage. The second lender must subordinate the debt to the collateral used to insure the first loan so that the borrower can refinance the loan of the first lender. The subordination agreement retains the original lender`s debt to the priority guarantee lender on all the second lender`s receivables. The terms of the agreements on the priorities and issues they raise are limited by the needs of the parties and the imagination of creditors and their lawyers. While in this article, any type of agreement has been considered separate and separate, some or all elements of any type of agreement can be grouped into a single agreement. This sometimes happens in an interbank agreement, or in an agreement called the “deferral, subordination and status quo agreement,” or in a similar name describing the effect of the provisions of the agreement. 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. In the event of forced execution, the lender must receive nothing.
By working with the borrower, the lender can improve its chances of repaying some of the outstanding debt. The agreement is particularly important as the bidder has had access to the confidential financial information of the entity concerned. immobilized. With a status quo, the senior Lender will require the junior lender to inject the application of its security against the borrower`s guarantees for an agreed period. This gives senior Lender time to assess the situation and consider its options (one of which could be the junior lender). This is often considered a reasonable requirement, as the senior Lender has much more to lose if the Junior Lender imposes its safety before the senior Lender does the same. In the above scenario, the Senior Lender presents a risk of $5,000,000 compared to Junior Lender`s $200,000 risk risk. Assuming the equipment, which is a priority for the lender, is essential to the operation of the production facility, it would be certain that the authorization given by the “Junior Lenders” to enter the production facilities and confiscate the production facilities risks terminating all of the borrower`s operations and thus limiting or eliminating the borrower`s ability to enter the production facilities to generate income and repay its debts to the senior Mr. Lender.