LOAN MODIFICATION AGREEMENT DRAFTING PROMPT

You are an experienced transactional attorney specializing in commercial lending and loan restructuring. Your task is to draft a comprehensive Loan Modification Agreement that properly amends an existing loan agreement while preserving the enforceability of all original loan documents and security interests.

DOCUMENT PURPOSE AND CONTEXT

This Loan Modification Agreement serves to formally amend the terms of an existing loan relationship between a borrower and lender. The modification may address various aspects of the original loan including interest rates, payment schedules, maturity dates, financial covenants, or other material terms. Your draft must ensure that the modification is legally binding, does not constitute a novation unless intended, and maintains the priority and enforceability of all existing security interests and guarantees. Consider whether the modification triggers any regulatory requirements, tax implications, or accounting considerations that should be disclosed or addressed.

HEADER AND RECITALS

Begin with a clear title "LOAN MODIFICATION AGREEMENT" followed by the effective date of the modification. Draft detailed recitals that establish the context and purpose of the modification. Specifically identify the original loan agreement by its execution date and all parties to that agreement, including the complete legal names of the borrower and lender. Reference any prior modifications or amendments to establish the complete chain of documentation. Include the original principal amount of the loan, the current outstanding principal balance, and a brief statement of the business purpose for the modification. The recitals should make clear whether this modification is being executed due to borrower request, mutual agreement to restructure, workout negotiations, or other circumstances. Ensure the recitals demonstrate that both parties have the authority to enter into this modification and that all necessary corporate approvals have been obtained.

IDENTIFICATION OF LOAN DOCUMENTS

Create a comprehensive section that precisely identifies all loan documents being modified. This should include the original loan agreement with its execution date, any promissory notes with their principal amounts and dates, security agreements and the collateral they cover, mortgages or deeds of trust with recording information, guarantees with guarantor names, and any other related documents such as subordination agreements or intercreditor agreements. Use defined terms consistently throughout the document, such as "Loan Agreement," "Note," "Security Agreement," and collectively "Loan Documents." This precision is critical to ensure that courts and future parties can identify exactly which documents are being modified and which terms remain unchanged.

MODIFICATIONS TO LOAN TERMS

Draft each modification with specificity and clarity, using separate numbered paragraphs for each distinct change. If modifying the interest rate, state the new rate precisely, indicate whether it is fixed or variable, specify the effective date of the change, and if variable, clearly describe the index and margin. For any maturity date extension, provide the specific new maturity date and confirm whether this extension affects any intermediate payment dates or milestones. When modifying payment schedules, either set forth the complete new payment schedule in the body of the agreement or attach it as an exhibit with clear cross-references. If the modification involves principal reduction, forbearance, or forgiveness, state the exact amount and any conditions precedent to such relief.

Address any modifications to financial covenants with precision, including debt service coverage ratios, loan-to-value requirements, minimum liquidity requirements, or other financial metrics. Specify the measurement dates, reporting requirements, and consequences of non-compliance. If adding new affirmative or negative covenants, draft them with the same level of detail as would appear in an original loan agreement, considering industry-standard provisions and the specific risk profile of this lending relationship. For any modifications to prepayment terms, clearly state whether prepayment penalties are being waived, modified, or newly imposed, and provide the calculation methodology.

CONDITIONS PRECEDENT

Enumerate all conditions that must be satisfied before the modification becomes effective. These typically include execution and delivery of the modification agreement by all parties, payment of any modification fees or outstanding default interest, delivery of updated financial statements or borrowing base certificates, reaffirmation of guarantees by all guarantors, delivery of updated legal opinions if required, evidence of insurance with appropriate lender loss payee endorsements, and updated UCC searches showing no intervening liens. If the modification is part of a workout or forbearance arrangement, include any specific conditions related to the borrower's performance or financial recovery. Consider whether updated organizational documents, good standing certificates, or authorization resolutions should be required.

REPRESENTATIONS AND WARRANTIES

Include appropriate representations and warranties from the borrower as of the modification date. The borrower should represent that it has full power and authority to enter into the modification, that the modification has been duly authorized by all necessary corporate action, that the execution and performance of the modification does not violate any law or agreement binding on the borrower, and that all representations and warranties in the original Loan Documents remain true and correct as of the modification date except as specifically disclosed. The borrower should confirm that no default or event of default exists under the Loan Documents except as may be specifically waived in the modification. Consider whether updated representations regarding financial condition, litigation, or material adverse changes are appropriate given the circumstances of the modification.

REAFFIRMATION AND CONFIRMATION PROVISIONS

Draft a comprehensive reaffirmation section that preserves all rights and obligations under the original Loan Documents. State clearly that except as expressly modified by this agreement, all terms, conditions, representations, warranties, covenants, and agreements contained in the Loan Documents remain in full force and effect and are hereby ratified and confirmed. Confirm that all security interests, mortgages, and liens securing the loan continue in full force and effect and secure all obligations as modified. Include specific language that the modification does not constitute a novation or release of any obligations, and that the lender reserves all rights and remedies under the Loan Documents.

If there are guarantors, include either their acknowledgment and reaffirmation within this document or require separate reaffirmation agreements. The guarantors should confirm that their guarantees continue to cover the obligations as modified and that they consent to the modification without any release or discharge of their guarantee obligations. Address whether any defenses, offsets, or counterclaims are being waived by the borrower and guarantors.

RELEASE AND WAIVER PROVISIONS

If the modification is part of a workout or settlement of disputed matters, carefully draft any release or waiver provisions. If the lender is providing forbearance or other concessions, consider whether the borrower should provide a release of claims against the lender. Draft such releases with appropriate specificity, indicating whether they cover known and unknown claims, and ensure they comply with applicable state law requirements. If any defaults are being waived, identify them specifically and state whether the waiver is limited to existing defaults or extends to future similar defaults. Consider whether a reservation of rights provision is appropriate to clarify that any forbearance is not a waiver of future defaults.

FEES AND EXPENSES

Address the allocation of costs associated with the modification. Specify any modification fee payable to the lender, including the amount and due date. Include provisions requiring the borrower to reimburse the lender for all reasonable costs and expenses incurred in connection with the modification, including attorneys' fees, appraisal fees, environmental assessment costs, UCC search fees, and recording costs. State whether such fees and expenses will be added to the loan balance or must be paid separately. Consider whether any default interest or late charges that have accrued should be addressed.

ADDITIONAL PROVISIONS AND BOILERPLATE

Include standard but essential provisions that ensure enforceability and address potential disputes. Add a severability clause providing that if any provision is found unenforceable, the remainder of the agreement continues in effect. Include a governing law provision specifying which state's law governs the modification, typically the same jurisdiction as the original Loan Agreement. Add a submission to jurisdiction clause and venue selection provision if appropriate. Include a provision stating that this modification may be executed in counterparts and that facsimile or electronic signatures are binding.

Address whether any jury trial waiver in the original Loan Documents continues to apply or should be restated. Include an integration clause stating that this modification, together with the Loan Documents as modified, constitutes the entire agreement regarding the subject matter and supersedes all prior negotiations and understandings. Add a provision prohibiting further modification except by written agreement signed by all parties. Consider including a time is of the essence provision if the modification includes time-sensitive performance obligations.

SIGNATURE BLOCKS AND EXECUTION

Prepare signature blocks appropriate for the type of entities involved. For corporate borrowers, include signature lines for authorized officers with their titles, and consider whether corporate seals or attestation by the corporate secretary is required. For lenders that are financial institutions, ensure appropriate signature authority. If there are multiple borrowers or lenders, include signature blocks for each. Leave space for notarization if the modification will be recorded or if acknowledgments are otherwise required. Include a schedule or exhibit listing all parties' notice addresses for future communications under the Loan Documents.

EXHIBITS AND SCHEDULES

Prepare all necessary exhibits and schedules referenced in the modification agreement. Common exhibits include amended and restated promissory notes if the note is being modified, revised payment schedules or amortization tables, updated legal descriptions of collateral if the security is being modified, forms of guarantor reaffirmations, updated borrowing base certificates if applicable, and any other documents specifically referenced in the modification terms. Ensure all exhibits are clearly labeled and properly incorporated by reference in the body of the agreement.

DRAFTING STANDARDS AND REVIEW

Throughout the document, maintain consistent defined terms, use clear and unambiguous language avoiding legalese where plain English suffices, employ proper paragraph numbering and cross-referencing, and ensure internal consistency between all provisions. Review the modification against the original Loan Documents to confirm that all intended changes are captured and that no unintended modifications are created by ambiguous language. Consider potential conflicts between the modification and original documents, and draft specific provisions to resolve any such conflicts in favor of the modification. Verify that all dollar amounts, percentages, dates, and other numerical terms are accurate and consistent throughout the document.

Ensure the modification complies with all applicable laws including usury limitations, truth-in-lending requirements if applicable, and any regulatory requirements specific to the type of lender or loan involved. Consider whether the modification triggers any requirements under the borrower's other agreements, such as change of control provisions or restrictions on incurring additional debt. Review for any tax implications of debt forgiveness or modification that should be disclosed or addressed.