Cross Acceleration Credit Agreement
A cross acceleration credit agreement is a legal contract between a borrower and a lender that outlines the terms and conditions of a loan. This type of agreement is commonly used in the corporate finance world, particularly in the context of mergers and acquisitions. The agreement contains provisions that allow lenders to accelerate the repayment of a loan under certain circumstances, such as a default or a change in control of the borrower.
One of the key features of a cross acceleration credit agreement is the cross-default provision. This provision allows lenders to declare a default on a loan if the borrower fails to make payments on other loans or debts. This means that if a borrower is in default on one loan, all other loans from that lender will also go into default, allowing the lender to accelerate the repayment of all outstanding debts.
Another important feature of a cross acceleration credit agreement is the acceleration clause. This clause allows lenders to demand immediate repayment of a loan if certain events occur, such as a change in control of the borrower, a breach of financial covenants, or a default on other loans. The acceleration clause is designed to protect the lender`s investment by allowing them to quickly recover their funds in the event of a default.
It is important for borrowers to carefully review the terms and conditions of a cross acceleration credit agreement before signing it. Borrowers should be aware of the potential consequences of default, including the possibility of having all outstanding loans called in for immediate repayment. Borrowers should also negotiate favorable terms, such as lower interest rates or longer repayment periods, if possible.
In conclusion, a cross acceleration credit agreement is a legal contract that outlines the terms and conditions of a loan. It contains provisions that allow lenders to accelerate the repayment of a loan under certain circumstances, such as a default or a change in control of the borrower. Borrowers should carefully review the terms and conditions of the agreement before signing it, and negotiate favorable terms if possible.