What does a 120 day standstill in an intercreditor agreement actually buy a junior lender

Question

Take a junior participation draft where the standstill runs 120 days from the senior's default notice. During that window the junior can't accelerate, can't start any enforcement, can't apply anything it's holding. Separately the senior can make protective advances for taxes, insurance and completion costs that come ahead of the junior with no cap stated, and interest accrues at a default rate that isn't defined in the draft either. So the question worth sitting with is which term to spend the negotiation on. One view says shorten the standstill, because 120 days behind a senior at a default rate on a 14 month bridge is how a 55k position becomes a 20k position. Get it to 60 and at least the loss stops compounding while everyone waits. The other view says the standstill length is close to meaningless. Even at day one, a junior lienholder isn't going to foreclose on a half-finished rehab. What actually matters is the right to receive the senior's default notice, the right to cure by making their payments, and a purchase option to buy out the senior at par plus accrued during a defined window. With those in place, 120 days is time to use instead of time lost. And a senior who caps protective advances is telling a junior more about how they'll behave than the standstill number does. Both get traded in practice. Worth asking which term this room spends its ask on, because nobody usually gets all of it.

stephen_ok9 · Answer

The uncapped protective advances would bother me more than either of the things you're choosing between. Undefined default rate plus uncapped advances means the senior can decide, after the fact, how much of the collateral value is theirs. Shortening the standstill to 60 days doesn't help if the number ahead of me grows without limit during those 60 days.

I'd ask for a cap and a definition first and treat the standstill as the thing I trade away to get them.

raj_mehta14 · Answer

A purchase option means the junior holder could pay off the senior entirely and step into first position, controlling what happens to the property from there. That's the only right in the list that actually delivers control, and also the one that demands the most cash to exercise. The prudent approach is sizing a gap position on the assumption that funding the senior's whole balance might eventually be necessary, rather than treating that outcome as theoretical.

dmitri_248 · Answer

@rajmehta14 it's not theoretical for people who plan for it, and the plan is the point. A buyout right you can't fund is a right you'll never exercise, so the practical version is either a smaller senior balance or a committed source of the takeout money before you sign. @wendypark48, on your fork, the ask is worth spending on notice and cure and the buyout window, with the cure mechanics written tightly. Notice to a specific address, a stated number of business days, cure by tender of the delinquent payments without curing non monetary defaults, and no requirement to cure the borrower's completion obligations. That last one gets people. A cure right that requires you to finish construction is a cure right you can't use. How much of an intercreditor is enforceable against a bankruptcy trustee is a lawyer question and varies, so counsel in that state should read the standstill and the subordination separately. They do different work and drafts often blur them.

What does a 120 day standstill in an intercreditor agreement actually buy a junior lender

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