Summary

When a borrower defaults, a forbearance agreement can provide a critical breathing spell – but only if it drives real action. This article explains how including banker-led capital process milestones in forbearance agreements creates a structured, time-bound path toward resolution. By requiring the retention of an investment banker and setting clear milestones (e.g., data room setup, indications of interest, letters of intent, and closing deadlines), lenders and borrowers alike benefit. Lenders gain accountability and the ability to monitor progress, while borrowers gain time, expert guidance, and strategic options to improve outcomes. Drawing on industry best practices, legal commentary, and Ravinia Capital’s real-world experience, we outline how to craft effective milestone clauses, provide example language, and illustrate why this approach is a win-win for both sides.

Introduction

In the world of workout lending and distressed credits, forbearance agreements have long been a valuable tool for lenders and borrowers at the first sign of trouble. Rather than immediately calling a default and enforcing remedies, lenders often agree to forbear for a short period – essentially pausing enforcement – to allow the borrower time to resolve its financial problems. A well-crafted forbearance gives up little on the lender’s part while potentially preserving or enhancing the lender’s recovery if the borrower can turn things around. However, simply giving a distressed borrower more time without a plan can be a recipe for delay and value erosion. That’s where banker-led process milestones come in. By conditioning the forbearance on the borrower taking specific, lender-approved actions – such as hiring an investment banker and hitting sale or refinancing process benchmarks – the agreement becomes a structured game plan rather than an open-ended extension.

Including detailed milestones in a forbearance agreement ensures that the borrower’s extra time is used effectively and that both parties stay on track toward a resolution. These milestones typically map out a capital or sale process step-by-step: for example, requiring the borrower to engage a qualified investment banking firm by a certain date, open a due diligence data room, solicit indications of interest (IOIs) and letters of intent (LOIs) from potential investors or buyers, and ultimately close a transaction by a fixed “drop-dead” date. Each milestone comes with a deadline, creating a time-bound roadmap to either refinance the debt, sell the business, or otherwise recapitalize the company. If the borrower fails to meet a milestone, the lender’s forbearance ends, and it can enforce its remedies – a powerful incentive for the company to stay proactive. In short, banker-led milestones transform a forbearance from a passive wait-and-see into an action-oriented workout plan.

Why Banker-Led Milestones Add Value in Forbearance Agreements

Forbearance agreements traditionally include various lender protections and conditions, from acknowledgments of default to added collateral. Increasingly, lenders insist on conditions that kick-start a restructuring or sale process as part of the deal. For example, it’s common to require the borrower to “retain an investment banker or broker to sell the business (or a division)” and to provide regular status updates to the lender. Requiring a professional investment banker to lead a marketing process brings focus and expertise to what might otherwise be a rudderless situation. It signals to the borrower that time is limited and that an impartial expert will be navigating the path forward. Crucially, it also reassures the lender that an organized process is underway to either find new capital or facilitate an exit, rather than simply hoping the borrower figures it out.

Milestones give lenders leverage and transparency. By writing specific benchmarks into the agreement, the lender can monitor the borrower’s progress and maintain control of the timeline. If a benchmark is missed, the lender can declare a default and exercise remedies, keeping the pressure on the borrower to perform. In essence, the milestones become tripwires that ensure the workout stays on schedule. This addresses a common lender frustration in workouts – inaction or stalling by a borrower. With a banker driving the process, there are tangible deliverables (an engagement, a data room, IOIs, LOIs, etc.) on a calendar. The lender gains confidence that the borrower’s promises are backed by real steps in the marketplace. As one legal commentary notes, lenders can and should impose such disciplined conditions (e.g., commencement of a sale process or retention of an investment banker) in forbearance agreements without overstepping – it’s a legitimate way to enforce progress after default. By structuring the process, the lender also retains the option to pivot quickly if the milestones indicate the desired outcome is unlikely, rather than wasting precious time.

Milestones also benefit borrowers, perhaps more than borrowers initially realize. While the requirements add pressure, they also create a clear plan of action at a time when management may be overwhelmed. The company gains access to an investment banker’s expertise in sourcing investors or buyers and running a fast yet comprehensive marketing process. This can expand the strategic options available – for instance, uncovering a refinancing or equity infusion opportunity that the borrower might not have found on its own. In exchange for agreeing to milestones, the borrower buys itself time to pursue a value-maximizing transaction, instead of facing immediate foreclosure. The process, if successful, can even preserve some value for the owners or equity holders that would be lost in a fire-sale or liquidation. As one turnaround advisor observed, banks today often “put pressure on the company to sell” or raise capital when a loan goes bad – and firms like Ravinia Capital specialize in helping borrowers execute those mandates in a way that ultimately benefits all stakeholders.

From the borrower’s perspective, having a reputable investment banker involved can lend credibility with the bank and other creditors. It promotes transparency and constructive engagement with the lenders, as the banker will usually keep all sides informed of progress. In fact, corporate finance experts encourage distressed companies to bring on a financial advisor or banker early, precisely because it provides an organized, good-faith process that can keep lenders cooperative. The banker’s process might surface multiple competing bids or financing proposals, giving the borrower strategic options to choose from (rather than being stuck with whatever the incumbent lender dictates). Even if the ultimate outcome is a sale of the company, a competitive process can drive a higher price – something that both the borrower and the secured lender should welcome. In short, the borrower gains professional guidance and an opportunity to resolve its issues on its own terms, albeit within a framework acceptable to the bank.

Real-World Impact: Forbearance Milestones in Action

Seasoned middle-market investment bankers, often engaged under forbearance agreements with sale milestones, have repeatedly witnessed how dramatically the dynamic shifts once those milestones are in place. In many cases, the mere prospect of bringing in an outside financial advisor under a structured timeline spurs a borrower’s management into action even before the engagement is formalized. For example, companies often begin assembling financial data, tightening up operations, and quietly reaching out to potential investors as soon as a draft forbearance agreement with sale milestones starts circulating. This early scramble happens because everyone knows that once the agreement is signed, the clock will start ticking on specific deliverables. The shift in behavior—from denial or delay to proactive problem-solving—is exactly what the lender hopes to achieve by adding these milestones. It creates a sense of urgency and focus that was typically missing during the prior months of covenant defaults and waiver requests.

Once officially engaged, the outside advisor uses the agreed-upon timeline as a roadmap to execute the transaction under tight deadlines. In one recent case, a staffing company operating under a forbearance agreement—and technically insolvent—engaged an investment bank to run an accelerated sale process. The advisory team kept the company out of bankruptcy and ultimately closed a successful transaction that exceeded expectations, even returning some proceeds to the original owners. In another situation, a consumer products company in forbearance hired a financial advisory firm to pursue a going-concern sale. The firm orchestrated an assignment for the benefit of creditors (ABC) with a stalking horse bidder to drive competitive interest, maximizing the sale proceeds, and facilitating a smooth exit for the lender. These outcomes illustrate that a well-run process can create value for both sides: the lender avoids a costly foreclosure or prolonged workout, and the borrower achieves a more favorable resolution, sometimes even preserving the business under new ownership.

Borrowers often initially resist the idea of bringing in an outside advisor, fearing a loss of control or a public signal of distress. But once that requirement is set in black and white and a financial advisor is on board, management’s behavior typically shifts from resistance to cooperation. They realize that the advisor is there to help find solutions and that meeting the milestones is in their own interest to avoid harsher outcomes. Time and again, when borrowers embrace the structured process—populating the data room, actively engaging with potential investors, attending weekly update calls—the chances of a positive outcome improve dramatically. Importantly, these provisions do not mean the lender is running the company. The borrower’s team remains at the helm, but now they have a financial advisor on board and a timeline to hit, which instills discipline. (For the lender, setting milestones through an agreement steers the process without usurping day-to-day control, helping avoid any risk of being deemed an improper “insider” in a future bankruptcy.) In sum, real-world experience shows that banker-led sale milestones not only expedite resolution but often lead to better recovery for lenders and better survival prospects for the business.

Best Practices for Structuring Milestone Clauses

To be effective, milestone provisions in a forbearance agreement must be clear, realistic, and well-aligned with the desired outcome. Crafting these clauses is both an art and a science. Below are some best practices, drawn from industry precedent and legal commentary, on structuring banker-led process milestones:

• Define the Roadmap with Specifics: The forbearance agreement should explicitly spell out each required step and deadline in the process. Vague promises to “pursue a sale” are not enough. Instead, list concrete milestones such as: hire an investment banker by X date; deliver a list of potential buyers by Y date; obtain at least one LOI by Z date, etc. Each milestone should have a calendar date or a defined timeframe (e.g., “within 30 days of engagement”) to eliminate ambiguity. Clarity up front prevents disputes later about whether the borrower is meeting its obligations. In the same vein, identify what constitutes success for each milestone (e.g., an “LOI acceptable to the Lender” or a minimum purchase price requirement) so that there is no doubt whether the milestone is achieved.
   
• Tailor Milestones to the Desired Outcome: Design the milestones around the ultimate path – whether it’s an orderly sale, a refinancing, or a capital raise. For a sale process, the milestones may include preparing a teaser and confidential information memorandum, contacting a minimum number of potential buyers, setting bid deadlines, and signing a definitive agreement by a certain date. For a refinancing, the milestones might involve hiring a debt advisor, sending a financing package to a number of lenders, receiving term sheets, and closing on new financing by the deadline. One size does not fit all: Milestones should be tailored to the specific transaction type and the company’s industry dynamics. If the lender’s goal is a sale of the business, interim steps like delivering a teaser and populating a data room make sense; if the goal is raising junior capital, milestones might focus on engaging an equity investor or mezzanine fund. Always consider the realistic time required for each step – e.g., international M&A buyers may need longer for due diligence than domestic financiers would for a refinancing. Both sides should also consider the market environment; for instance, if industry or economic conditions are challenging, build in enough time (or extension mechanisms) to account for potential delays.
   
• Balance Tight Deadlines with Flexibility: Lenders naturally want a short fuse – a tight timeline that forces the issue – whereas borrowers will push for more breathing room and contingency time. A well-negotiated clause often includes a bit of both: hard dates that create urgency, but possibly some limited extensions or milestones conditioned on “commercially reasonable efforts.” For example, the agreement might allow the lender, in its discretion, to extend a milestone by a week or two if a deal is in sight. Some agreements explicitly permit a one-time short extension (say, five business days) if certain milestones are nearly complete. The key is not to allow open-ended delays – extensions should be tightly controlled by the lender or conditioned on objective progress. In practice, **borrowers often seek general milestones (e.g., “sell the company within 90 days”) with a cushion, whereas lenders want granular interim checkpoints. The final structure should ensure the borrower is continuously moving forward, while avoiding dates so unrealistic that failure is assured. It’s a best practice to include periodic check-ins as well – for instance, requiring weekly status calls or written updates from the borrower or its banker to the lenders. This keeps everyone informed and maintains pressure between the major milestones.
   
• Include a Drop-Dead Date and Final Outcome Requirement: Every forbearance should have an ultimate end date – often termed a “forbearance termination date” or “drop-dead date” – by which the workout must be resolved. All interim milestones feed into this final deadline. The agreement should state that by this date, the borrower must have closed on a “Fundamental Transaction” (be it a sale, refinancing, or other deal) that results in the lender being paid in full or otherwise receiving a lender-approved outcome. Tying the forbearance period to a concrete end goal (e.g., consummation of a transaction by June 30) provides a clear finish line. It also avoids confusion – the borrower knows that if the ultimate transaction hasn’t occurred by that date (or if any interim milestone is missed earlier), the lender is free to enforce remedies without further notice. This certainty creates a strong incentive for all parties to work diligently toward closing. From the lender’s perspective, the drop-dead date caps how long it will wait; from the borrower’s perspective, it’s the amount of time they have secured to try to save the company. Often, if good progress is being made as the deadline nears, lenders may choose to amend or extend the forbearance, but that will be a decision for later – the initial agreement should assume a hard stop to keep everyone’s focus.
   
• Provide for Lender Approval and Involvement (Without Micromanaging): Milestone clauses should require that key steps – like the choice of investment banker, the content of an LOI, or the selection of a buyer – are reasonably acceptable to the lender. This ensures the borrower doesn’t just check the box with subpar efforts (for example, hiring an unqualified broker or signing a low-ball LOI). The agreement can stipulate that the investment banker’s engagement letter and the list of target investors/buyers be shared with the lender or its advisors. It’s also common to require that the banker and borrower keep the lender informed through periodic updates or copies of IOIs/LOIs received. However, drafters should be careful to maintain the distinction that the borrower is running its business and the sale process – the lender is not the one directing day-to-day decisions, but rather setting goals and approving key outputs. This balance is important both for practical relationship reasons and legal ones: lenders want to avoid being seen as so controlling that they become “insiders” or assume borrower liabilities. The milestone approach, when done right, strikes this balance – the lender sets the destination and checkpoints, while management (with its banker) does the driving.
   
• Make the Consequences of Failure Explicit: Finally, the clause should state in no uncertain terms that failure to meet any milestone is an immediate default under the forbearance (absent an express waiver or extension from the lender). This language makes it clear that the milestones are central to the agreement – not just aspirational targets. For example, the agreement might say that if any milestone is missed, the forbearance period automatically terminates, and the lender may exercise all rights and remedies under the original loan documents immediately, without further notice or opportunity to cure. Both parties should understand the gravity of missing a deadline. In practice, if a minor milestone is missed but progress is otherwise positive, the lender can always choose to waive that default or amend the timeline. But having the threat of termination on the books is critical to maintaining urgency. It gives the lender negotiating leverage to keep things on track – the borrower knows that a slip could mean foreclosure or bankruptcy, which keeps the pressure on to perform.

Sample Milestones Clause Language

Below is an example of how a forbearance agreement’s milestone provision might be structured. This sample clause illustrates the concepts above in a simplified form (for educational purposes only, not as legal advice). Note that the specific dates and timeframes would be filled in for the actual situation, and the language would be adjusted to fit the overall agreement style:

Sale Process Milestones: As a condition to the forbearance granted herein, the Borrower agrees to undertake and complete the following sale process milestones by the dates specified below (the “Milestones”). Failure to timely satisfy any Milestone shall constitute an immediate Event of Default under this Agreement and termination of the Forbearance Period, without the need for further notice from Lender.

1. Retention of Investment Banker: On or before [Date], the Borrower shall engage an investment banking firm acceptable to Lender (the “Investment Banker”) pursuant to an engagement letter reasonably satisfactory to Lender. The Investment Banker shall be engaged to solicit proposals for a sale, refinancing, equity investment, or other fundamental transaction involving the Borrower (a “Transaction”), as contemplated by this Agreement.
    
2. Data Room Establishment: Within [X] days after engagement of the Investment Banker, the Borrower shall establish a virtual data room and populate it with customary due diligence information regarding the Borrower’s business, financials, and assets. The Borrower shall provide the Investment Banker and all prospective Transaction counterparties who have executed an acceptable confidentiality agreement with access to the data room by no later than [Date], and shall continuously update the data room as reasonably requested by Lender or any potential counterparty.
    
3. Indications of Interest (IOIs): On or before [Date], the Borrower (with the assistance of the Investment Banker) shall deliver to Lender copies of one or more written indications of interest from potential purchasers or investors. Each IOI must be duly authorized by the offering party and outline the material terms of such party’s interest in a Transaction. At least one IOI shall be from a party that the Lender, in its discretion, deems to be credible and likely to consummate a Transaction on terms acceptable to Lender.
    
4. Letter of Intent (LOI): On or before [Date] (no more than [Y] days after the IOI deadline above), the Borrower shall deliver to Lender a signed, binding letter of intent from an acceptable party for an approved Transaction. The LOI shall include, at minimum, the proposed purchase price (or investment amount) and funding sources, key terms and conditions, and a closing date on or before [Final Transaction Closing Date]. The LOI must remain effective (i.e., not revoked or expired) through the end of the Forbearance Period.
    
5. Selection of Buyer/Investor: On or before [Date] (within [Z] days after the LOI deadline), the Borrower, with Lender’s prior written consent, shall formally accept one of the proposals by notifying the corresponding buyer/investor in writing of its selection and intent to proceed exclusively with that party. Borrower shall then promptly engage in good faith negotiations with the selected party toward definitive agreements.
    
6. Transaction Closing: On or before [Final Transaction Closing Date], the Borrower shall consummate the Transaction described in the accepted LOI, resulting in payment in full of all obligations owing to Lender (unless otherwise agreed by Lender in writing). The closing date may be extended only by written agreement of Lender in its sole discretion.
   (The agreement would continue with any additional covenants, and specify that if any milestone is not met, the lender’s forbearance is lifted.)

The above sample illustrates a balanced approach: it sets forth a sequence of required actions (hire banker, open data room, get IOIs/LOI, etc.) with firm deadlines, while also building in lender approval at key junctures (acceptable banker, acceptable LOI, consent to chosen deal). In a real scenario, the clause could be even more detailed – for instance, breaking down interim marketing steps or requiring weekly status meetings. The exact wording will vary, but the essence is that both parties know exactly what must happen by when to keep the forbearance in effect.

Conclusion

For workout lenders, secured lenders, and their counsel, incorporating banker-led process milestones into forbearance agreements is a powerful strategy to drive resolution instead of prolonging uncertainty. These provisions align the interests of lender and borrower by coupling additional time with actionable steps. The lender gains reassurance that the borrower is actively addressing the problem (under the guidance of a professional advisor), and retains the ability to pull the plug if momentum falters. The borrower, in turn, gains a last chance to find a value-maximizing solution, with the help of an expert and a clear framework to satisfy the lender. In effect, the milestones serve as a project plan for the turnaround or exit – bringing much-needed structure to a chaotic situation.

As shown by Ravinia Capital’s experience in multiple forbearance-driven engagements, this structured approach can produce real wins on both sides. Banks see troubled loans resolved in a timely, orderly way (often avoiding costly litigation or foreclosure), and borrowers often achieve a better outcome – whether it’s selling the business as a going concern, refinancing with a new capital partner, or even getting renewed support from the existing lender once they see progress. The key is careful drafting and execution: setting clear expectations, choosing the right investment banker (like Ravinia) as a partner, and maintaining open communication throughout the process. With best practices in mind and a proven team in place, banker-led milestones in forbearance agreements turn a period of distress into a controlled opportunity – one that channels the urgency of a deadline into a collaborative effort to restore financial stability. In today’s environment of economic uncertainty and rising default risks, that kind of structured, time-bound collaboration is more important than ever.

Sources: The insights and examples above draw on industry guidance and precedents for forbearance agreements, turnaround best practices from leading law firms, and real-world cases involving Ravinia Capital, a proven partner in executing such provisions. These sources underscore that banker-led milestones – far from being merely extra paperwork – are a proven mechanism to drive accountability and results when time is of the essence in a workout situation. By embracing this approach, lenders and borrowers can move together toward the common goal of a successful resolution.