The buyer's bank insists on an intercreditor agreement with an indefinite standstill clause that prevents us from taking legal action or seizing assets on our seller note if the buyer defaults. How do we negotiate standard market standstill terms?

Question

Tyler Smith · Accepted Answer

Senior commercial lenders will always try to subordinate your seller note into an unenforceable promissory obligation. An indefinite standstill provision gives the bank complete discretion to cut off your note payments while blocking you from exercising any legal remedies, accelerating the debt, or pursuing collateral. You must actively negotiate the intercreditor terms to maintain meaningful structural leverage.

First, replace the indefinite standstill with a strict market-standard standstill window, typically ninety to one hundred eighty days. Once the standstill period expires following a payment default on your seller note, you must retain the legal right to pursue specified collection remedies or take back the pledged equity, provided you do not liquidate core senior bank collateral without bank consent.

Second, carve out payment blockages. The bank should only be permitted to block your monthly note payments if there is an active payment default on the senior credit facility, or a written financial covenant default notice that limits blockages to no more than one hundred twenty days in any consecutive twelve-month period.

Third, secure cure rights. The intercreditor agreement should grant you the contractual right to cure the buyer's senior debt defaults to prevent foreclosure, and the right to purchase the senior bank debt at par if the business enters distressed workout. Ensure your note includes payment-in-kind interest so that any unpaid interest during a blockage capitalizes into your principal balance at a higher default interest rate.