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Loan Modifications in the Wake of COVID-19

April 09, 2020

By: Michael Provenzale, Michael Ryan, & Nicole Cuccaro

Given the economic impact of COVID-19, both monetary and non-monetary defaults on commercial loans are likely in the next few weeks and months, if not a reality already. Both lenders and borrowers should consider initiating communication to discuss potential problems and to try to identify solutions.

In particular, lenders with borrowers in the hotel, restaurant, event, and retail industries should begin to consider which specific borrowers may be in financial distress and review their loan documents for likely events of default. Likewise, borrowers may want to get ahead of actual defaults by discussing various options with their lenders, including a possible default waiver and modification of the loan documents to avoid future defaults, or a loan workout with forbearance agreement.

One matter to consider is the impact of any force majeure provision on the non-performance by the borrower. This provision should be reviewed carefully, and both borrowers and lenders should consult their counsel before relying upon, or dismissing, a force majeure argument. To the surprise of some borrowers, the inability to make payments because of adverse effects on its business as a result of COVID-19 may not provide a defense. Further, review the loan documents for a material adverse change clause and consider what impact a such a clause could have under the current circumstances.

Another consideration is whether the loan documents include financial covenants that could trigger a default even absent a monetary default. If a lender is entitled to request and review financial statements of the borrower, the lender should seek updated financial information and determine whether any financial covenant, such as the debt service coverage ratio, is a potential problem area. Similarly, lenders should review the financial state of any guarantor, who may be subject to a minimum net worth requirement under the guaranty, particularly in light of the recent movements of the stock market. 

Remedies available to lenders in the event of such defaults will be loan-specific, and lenders should consider whether forbearance as to such defaults and loan modification, as opposed to enforcement, would be financially prudent where the borrower has a reasonable chance of getting back on track, particularly when the recoverability of the debt is uncertain. Also to be considered in this regard is the effect of applicable governmental orders purporting to stay any foreclosure actions.  

If a borrower is claiming financial distress, explore alternative funding options, especially opportunities under the CARES Act. In addition, lenders and borrowers may want to review the organization documents of borrower entities to determine whether a capital call may be appropriate. If the borrower’s cash flow appears to be a temporary issue, deferment of payments may be a reasonable solution.  

From the lender’s perspective, any agreement to forbear or modify the terms of a loan should be paired with additional or revised financial reporting requirements, a waiver of any opportunities to cure upon subsequent default, a waiver of any existing claims or defenses, including common law defenses such as impossibility of performance, bankruptcy protections, and additional guaranties or security. This is also an opportunity for the lender to correct any deficiencies that may exist with the original loan documents.

In the event that the parties decide to negotiate a forbearance agreement, lenders should require confidentiality both during negotiations and as to the final agreement. A pre-negotiation agreement that specifically includes provisions providing for confidentiality and the inadmissibility of negotiations in any future litigation (similar to a settlement discussion), may be wise, particularly when negotiating with sophisticated borrowers.

Finally, lenders should be cautious to avoid causing any waiver of its rights and remedies under the loan documents during negotiations, which is an issue that can be specifically addressed in a pre-negotiation agreement.

Prior to initiating communication with borrowers and/or lenders, we recommend reaching out to your counsel to review applicable loan documents and assist with any pre-negotiation and forbearance agreements. Please contact any member of the Lowndes Banking & Finance Group with any specific questions.

Be sure to visit our Coronavirus (COVID-19) Resource Center to keep up to date on the latest news.

This article is informational only. You should consult an attorney before acting or failing to act. The law may change rapidly and no warranty is given. LOWNDES DISCLAIMS ALL IMPLIED WARRANTIES AND WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ALL ARTICLES ARE PROVIDED AS IS AND WITH ALL FAULTS. Consult a Lowndes attorney if you wish to establish an attorney/client relationship.

Mike Provenzale is a shareholder in the Creditors’ Rights Group, representing institutional and private lenders in commercial loan foreclosure and other collection lawsuits, receiverships, workouts, bankruptcies, and REO dispositions throughout the state. His litigation practice also includes business, real estate, and condominium litigation.

Additionally, Mike has experience in the area of Real Estate Transactions, Development and Finance, where he has represented a myriad of private and public clients in connection with the leasing, financing, acquisition, and disposition of commercial real estate, and has published several articles on current creditors’ rights and real estate issues.


Michael Ryan’s clients are optimistic visionaries who have helped to build Central Florida into the thriving community it is today.

From his representation of the Orange County Research and Development Authority which acquired, financed, developed, managed and marketed the highly successful 1,000-plus-acre Central Florida Research Park, to the University of Central Florida’s planned teaching hospital at Lake Nona and their downtown campus in Orlando Creative Village, Mike and his clients have had a hand in many of the significant projects that have shaped this Central Florida community.

With years of experience representing developers and lenders in complex real estate transactions, Mike’s problem-solving and organizational skills, his industry knowledge, and his dedication to client service have proved invaluable to his clients.

Mike had not always planned for a career as a real estate lawyer. In college, he studied mathematics and enjoyed subjects such as linear algebra, differential equations and complex analysis. He also had a passion for government studies. With summer jobs at a landscaping firm while in college and a full-time job managing an apartment building while in law school, it was only natural that his academic and work experiences would lead Mike toward a real estate practice.

Throughout the many Florida real estate booms…and busts…Mike’s background as a problem solver has been particularly helpful in his representation of developers, investors and lenders in complex real estate development and finance transactions – both public and private.

Earning a reputation for keeping a deal moving through to completion, regardless of the economic climate, Mike’s skills naturally led to representation of lenders and investors in acquiring and disposing of distressed assets during economic downturns. His experience was particularly helpful in analyzing and resolving title problems, confirming land use entitlements, understanding community development district assessments, and recapturing control of homeowner/property owner/condominium associations.

“My success is tied directly to helping my clients succeed,” Mike asserts.

Mike is equally committed to the Central Florida community through his involvement in many civic and charitable organizations. He helped the Boys & Girls Clubs of Central Florida to structure a unique arrangement with the Orange County Public School System: a new Boys and Girls Club is located at the OCPS Academic Center For Excellence in the downtown Orlando Parramore neighborhood.  He has served as Chair of the Boys & Girls Clubs of Central Florida, and as Board Chair of the American Red Cross of Central Florida.

When he is not spending family time in Winter Park with his wife, Theresa, their daughter and granddaughter, Mike can be found on the golf course, or working with Theresa on the landscaping in their yard. He and Theresa also spend time at their home in Ireland where they are very much in touch with their Irish roots.


Nicole Cuccaro concentrates her practice on real estate transactions, real estate development and commercial leasing. She assists a wide range of clients with the acquisition, disposition, leasing and financing of commercial real estate in the retail and hospitality industries.

Before she focusing her practice in the area of real estate law, Nicole handled a variety of commercial and corporate litigation matters and regularly represented lenders and business entities.

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