Commercial Loan Guarantees Under Heightened Scrutiny

Strategies for Lenders and Guarantors in Drafting, Negotiating and Enforcing Guaranty Agreements

Recording of a 90-minute CLE webinar with Q&A


Conducted on Tuesday, July 21, 2009

Program Materials

This seminar will analyze key components of commercial loan guaranties and defenses to the enforceability of these agreements. The panel will outline best practice for both lenders and guarantors in structuring, drafting and negotiating guaranty agreements in connection with loan workouts and new loan transactions.

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.

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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?

Faculty

Charles (C. J.) Schoenwetter
Charles (C. J.) Schoenwetter

Partner
Bowman and Brooke

He concentrates his civil litigation practice in the areas of general commercial, construction and product liability...  |  Read More

Tony Toranto
Tony Toranto

Special Counsel
Luce Forward

He specializes in real property transactions, business transactions, and clean technology. His expertise includes...  |  Read More

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