Standstill
Also known as: Forbearance agreement, Waiver period
Creditors agree not to enforce while a plan is negotiated. It buys the only genuinely scarce thing here, which is time.
1 · SnapshotThe one idea to remember
2 · BeginnerWhat actually happens?
When a company breaks a term of its loan or misses a payment, its lenders suddenly have rights they did not have the day before. They can demand everything back at once, or take the assets they hold as security.
Doing that immediately is usually bad for everybody. A business seized and sold quickly is worth far less than one that keeps operating. So the lenders and the company sign a standstill: an agreement that nobody will enforce for a period, while a solution is worked out.
It does not forgive anything. The debt is still there, the breach is still a breach, and at the end of the period the same choice returns. What it buys is time to negotiate — which is the one thing that is genuinely scarce here and cannot be created any other way.
The catch is that it only works if everybody signs. One lender outside the agreement can still act, and if it does, the whole thing collapses. So the first weeks of any restructuring are spent finding out who actually owns the debt — which is harder than it sounds, because it trades.
- 1
The trigger1 day
A covenant is breached or a payment is missed, and creditors acquire rights they did not have yesterday.
- 2
Reservation of rightsdays
Creditors write to say that talking to the company waives nothing, which is the first sign the relationship has changed.
- 3
Organising2–5 wks
Creditors form groups, appoint their own advisers and sign confidentiality agreements.
- 4
The standstill1–6 mths
Enforcement is suspended, information flows, and a plan is negotiated against a deadline.
- 5
Extend or enforce1 day
The standstill is rolled forward, replaced by a plan, or allowed to lapse.
Enough creditors sign — Each creditor group decides. One holder outside the standstill can enforce and collapse it, which is why the first weeks are spent finding out who owns the debt.
New money for the period — Whoever will fund it decides. A standstill without liquidity is a countdown rather than a negotiation.
Who is on the deal
| Who | Side | What they are actually for |
|---|---|---|
| The company | Neither | Owes duties that shift towards creditors as insolvency approaches, which is a legal fact rather than a preference. |
| The lender groups | Buy side | Organise into committees, because scattered creditors cannot negotiate and can only enforce. |
| Holdout creditors | Neither | One holder outside the standstill can enforce and collapse it, which is why finding out who owns the debt comes first. |
| The advisers | Both | Each group appoints its own, and the company pays for most of them. |
| Trade suppliers | Neither | Are usually outside the standstill entirely, and shortening their terms is what causes the cash to run out. |
- Desk
- Restructuring
- What it does
- Suspends enforcement, not the debt
- Duration
- Weeks to months, usually rolled forward
- Requires
- Enough creditors to sign that nobody left out can act alone
- Does not provide
- Cash — that is a separate problem
What decides whether it completes
Not how hard this is, and not a rating — there is deliberately no total. It says which of five blockers decides whether this transaction happens at all, in the same order on all 70 transaction types so they can be compared. This publication's own reading; see the notice below.
- Pricebarely applies
- Financingdecides it
- Approvalbarely applies
- Diligencematters
- Executiondecides it
What decides it here. A standstill buys time and does not create cash, so the question is whether the company can fund the period it has just bought. The execution risk is holdouts: one creditor outside the agreement can enforce and collapse it, which is why the first weeks are spent finding out who actually owns the debt.
3 · IntermediateHow it runs in practice
What comes first
A reservation of rights letter. A creditor writes to say that continuing to talk to the company waives nothing — it is not agreeing to the breach, not extending any deadline, and reserves everything. It reads as a formality and it is the moment the relationship changes.
Organising creditors
Scattered creditors cannot negotiate; they can only enforce. So they group:
- A coordinating committee of the largest holders, which does the work for everybody.
- Separate groups by seniority, because senior and junior creditors want different outcomes and cannot be represented together.
- Advisers for each group, paid by the company — because creditors who cannot afford advice cannot agree to anything, and a plan agreed by unadvised creditors is one a court is more likely to refuse.
What the company gives up
- Information. Weekly cash forecasts, and usually an independent review of the business prepared for the creditors rather than by the company.
- Freedom. Restrictions on payments, disposals, new debt and sometimes on ordinary spending decisions.
- Milestones. A term sheet by a date, a plan by another. Miss one and the standstill lapses.
The two clocks
The standstill has an end date. So does the cash. Whichever comes first decides what happens, and a great deal of the work is making sure it is the first rather than the second — see rescue financing, which is how the second clock is extended.
4 · AdvancedThe numbers & the documents
Directors' duties shift, and it is not a metaphor
As insolvency approaches, the duties of a company's directors in most jurisdictions shift from acting in the interests of shareholders towards the interests of creditors as a whole. That is a legal change with personal consequences, and it changes the advice the board receives overnight.
It is also why a company's own adviser in a restructuring is not simply working for the shareholders, and why the phrase "the company's interests" stops being interchangeable with "the owners' interests" at exactly this point.
Why finding the holders is hard
Bank debt trades and bonds trade. By the time a restructuring starts, the original lenders are frequently gone, replaced by funds that bought at a discount. Two consequences:
- The economics differ. A fund that paid sixty for a claim of a hundred is happy with an outcome that a bank holding at par would refuse.
- The willingness differs. Distressed funds will take equity; many banks cannot hold it at all.
Which is why the composition of the creditor group is one of the first things anybody serious establishes, and why it is checked repeatedly as the process runs.
Trade creditors, who are usually outside it
Suppliers are rarely part of a standstill and they are frequently what kills the company. A supplier that shortens terms from sixty days to cash on delivery takes working capital out of a business that has none — quietly, without any announcement, and faster than any lender could. Managing suppliers is therefore a larger part of these processes than the documents suggest.
What a standstill is worth
It is not a solution and it is not meant to be. It is a container in which one of the transactions on this desk can be built — an amend and extend if the problem is a maturity, a debt-for-equity swap if the problem is the amount, a wind-down if there is no business worth saving. What the standstill decides is whether there is time to find out which.
The formulas above are standard textbook formulations, simplified for teaching. They explain the mechanism — they are not a valuation tool, and they will not reproduce a dealer’s price.
5 · Desk notesHow people on the deal think about it
Now say it back
Close the page and give Standstill in four sentences. It takes a minute and it is the only way to find out whether reading it was enough.
- Who wants what — name both sides and what each one is actually trying to get.
- What has to happen, in order — the three or four stages, not the whole timetable.
- Where the money comes from — cash, new shares, or borrowed; somebody has to fund it.
- What kills it — the ordinary way, not the dramatic one.
Where this transaction shows up elsewhere
- EasyCourt-supervised reorganisationDealA company files for protection and keeps running
- HardRestructuringDeskWhat happens when a company cannot pay: the standstill, the valuation fight, classes and voting, new money and the…