The Forbearance Agreement Commercial Loan is a critical document used in Pakistani banking practice when a borrower faces financial difficulties in meeting their loan obligations but demonstrates potential for recovery. This agreement becomes relevant when a default has occurred or is imminent under a commercial loan facility, but the lender is willing to grant temporary relief rather than pursuing immediate enforcement action. The document must comply with Pakistani banking regulations, particularly the State Bank of Pakistan's Prudential Regulations and the Banking Companies Ordinance 1962. It typically includes detailed terms of forbearance, modified payment schedules, additional reporting requirements, and specific conditions that the borrower must meet to maintain the forbearance period. The agreement serves as a structured approach to loan workout situations while protecting the lender's rights and providing the borrower with a defined path to regularize the loan.
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1. Parties: Identifies the lender, borrower, and any guarantors or security providers involved in the original loan agreement
2. Background: Recitals detailing the original loan agreement, current outstanding amount, nature of default/potential default, and reason for forbearance
3. Definitions: Defines key terms used throughout the agreement, including references to the original loan agreement and new forbearance terms
4. Acknowledgment of Debt: Borrower's formal acknowledgment of the outstanding debt amount and default status
5. Forbearance Terms: Details of the forbearance period, conditions, and any modified payment terms
6. Conditions Precedent: Conditions that must be satisfied before the forbearance becomes effective
7. Borrower's Covenants: Specific undertakings and obligations of the borrower during the forbearance period
8. Representations and Warranties: Updated representations and warranties from the borrower regarding their financial condition and ability to comply
9. Events of Default: Specific circumstances that would terminate the forbearance and trigger enforcement rights
10. Reservation of Rights: Lender's reservation of rights under the original loan agreement
11. Governing Law and Jurisdiction: Confirms Pakistani law as governing law and specifies jurisdiction for disputes
12. Miscellaneous: Standard boilerplate provisions including notices, amendments, and severability
1. Additional Security: Include when new security is being provided as part of the forbearance arrangement
2. Guarantor Consent: Required when the original loan has guarantors who need to consent to the forbearance
3. Financial Reporting Requirements: Include when additional financial reporting obligations are being imposed during forbearance
4. Step-In Rights: Include when lender requires right to take control of certain assets or operations
5. Restructuring Plan: Include when a specific business restructuring plan is part of the forbearance conditions
6. Third Party Consents: Include when certain third party consents are required for the forbearance
7. Interest Modification: Include when changes to interest calculation or rates are part of the forbearance
1. Schedule 1 - Original Loan Details: Details of the original loan agreement including date, amount, and key terms
2. Schedule 2 - Current Outstanding Amount: Detailed breakdown of current outstanding principal, interest, and any other charges
3. Schedule 3 - Modified Payment Schedule: New payment schedule agreed as part of the forbearance
4. Schedule 4 - Additional Security Details: Details of any new security being provided
5. Schedule 5 - Conditions Precedent Documents: List of documents and conditions required before forbearance becomes effective
6. Appendix A - Form of Compliance Certificate: Template for periodic compliance certification by borrower
7. Appendix B - Financial Covenants: Detailed financial covenants and calculation methodologies
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