Commercial Loan Guarantees Under Heightened Scrutiny

Description

Parties may have given little attention to guaranties in commercial loan transactions in the past. However, as loan defaults continue to climb, lenders increasingly seek to enforce guaranties, particularly with commercial real estate and construction loans.

In a loan workout, guarantors may be deemed released from the obligations if a significant loan term is modified without the guarantor's consent. Lenders must carefully examine the waiver of suretyship defenses in the guaranty to ensure the continued obligation of the guarantor.

Corporate and personal guarantors should increase their vigilance in negotiating with lenders. As lenders weigh remedies and guarantors evaluate exposure, the parties must analyze the scope of the guaranty, the extent of exposure, and issues of enforceability.

Listen as our authoritative panel of commercial financing attorneys discusses the key elements of loan guaranties, potential defenses to enforceability, and best practices for both sides in structuring, drafting and negotiating commercial loan guaranties.

Outline

1. Scope of guaranty agreements
   1. Guaranty of payment v. collection
   2. Full or limited payment/duration guaranty
   3. Reducing guaranty
   4. Carve out “bad boy” guaranty
   5. “Springing” guaranty
   6. Completion guaranty
   7. Intercorporate guaranty (“upstream, downstream, cross-stream”)
2. Drafting guaranty agreements; key provisions
   1. Invalidity as to primary obligor
   2. Subrogation
   3. Waiver of suretyship and defenses
   4. Notice of default
   5. Notice and cure opportunity
   6. Right to revoke/continuing guaranty
   7. Environmental indemnity
   8. Guarantor covenants
   9. Liability for multiple obligations
3. Enforcement Issues
   1. Interpretation of guaranty
   2. Consideration for guaranty — timing of guaranty
   3. Acceptance by lender
   4. Fraud
   5. Ambiguity
   6. Material increase in risk
   7. Lender breached first
   8. Impairment of collateral
   9. Right to jury trial
   10. Loan modification/workout considerations
   11. Foreclosure considerations
   12. Bankruptcy considerations

Benefits

The panel will review these and other key questions:

• In what situations will lack of consideration be a viable defense to enforceability?
• What is the distinction between a guaranty of payment and a guaranty of collection, and why does this matter?
• What lender liability risks are inherent in its dealings with a guarantor?
• How do springing guaranties in commercial mortgage loans affect the distressed borrower's options?

CLE Credit

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