Key Points:
A forbearance arrangement is a useful instrument to
ensure that both the lender and the customer are aligned on the
proposed turnaround or workout.
Enforcement action in response to a customer default (or pending
default) is often the least desirable option from a lender's
perspective. There are alternative arrangements that you may
consider when determining the appropriate response to a default,
and potential wins from implementing a well thought out and
structured workout plan (whether the strategy is to retain or exit
the customer) through a formal forbearance arrangement.
In this article, we describe what a forbearance is, when it is
appropriate, some of the commercial justifications for forbearing
and why it is critical that a forbearance arrangement is carefully
considered and properly drafted. We also suggest some practical
tips (for both lenders and their customers) to assist in
determining whether a forbearance is in the best interests of
