If the Bank has decided to enter into workout negotiations with the borrower a Pre-Workout Agreement should be considered. A sample form is located at the end of this Chapter.
The agreed upon modifications may include(i) changes to the covenants or periodic payment dates without changing the maturity date, (ii) an extension of the maturity date or (iii) a renewal of the loan (such as with a balloon payment of principal.
If the loan is at maturity and the Bank agrees to renew the loan, remember the renewed promissory note should be marked RENEWED, never “cancel” or “paid”. The old note should be kept in the loan file. The new note should recite that:
This note is in modification, renewal and extension of, but not in extinguishment of, the indebtedness originally evidenced by that one certain promissory note dated __________, 19___. In the original principal sum of _____________________ and No/100 Dollars ($__________), executed by Maker payable to the order of [Bank], bearing interest and being due and payable as therein described, it being acknowledged and agreed that said indebtedness constitutes the same indebtedness evidenced by this Note. Maker agrees that the obligations of Maker under any loan agreement, security agreements and/or other documents executed in connection with or as security for the above-described note or the indebtedness evidenced thereby or by this Note are renewed, ratified, brought forward and extended for the benefit of [Bank] until the indebtedness evidenced hereby shall have been fully paid and discharged.
•If the original security agreement specifically secured the old note and does not provide that it secures “the note and all extensions, renewals and modifications” or “and all other indebtedness of the debtor to the Bank”, the Bank must have a new security agreement executed. It should recite that it is in renewal and extension of the prior agreement and covers all indebtedness of the debtor to the Bank.
•If the loan is guaranteed, the guaranty must be reviewed to determine whether it guarantees the old note “and all extensions, renewals and modifications” or “all indebtedness of the debtor to the Bank.” If it secures only the old note, a renewal guaranty must be signed. It should cover all indebtedness of the debtor to the Bank, if possible. If the guaranty will not secure all indebtedness, the guaranty should at least contain the guarantor’s consent to renewals and extensions.
•In certain instances the Bank may agree to extend the due date(s) of one or more payments under the original note. A form Loan Extension Agreement for this purpose is located at the end of this Chapter. More extensive changes such as covenants, interest rates, etc. may require a Commercial Debt Modification Agreement. A form for this purpose is located at end of this Chapter.