Standstill period
LBOThe period after a junior default during which a junior creditor is contractually barred from accelerating or enforcing.
Also written: standstill, enforcement standstill
A standstill is the intercreditor's answer to an obvious problem. If a junior lender could accelerate and enforce the moment its own default occurred, it could force an outcome that destroyed value for the senior lenders ranking ahead of it. So the document takes that right away for a defined period.
During a standstill the junior creditor may not accelerate its debt, enforce security, sue for payment or petition for insolvency. It usually runs alongside a payment block, so no cash is reaching the junior lender either. What it can still do is accrue, negotiate, and vote where the document gives it a vote.
European practice under the standard form grades the period by the type of default, with a shorter window for a payment default and longer ones for other defaults, and every period is negotiated. The starting point is a market convention rather than a rule.
The effect is sequencing rather than prohibition. By the time a standstill expires the senior group has normally already run its process, so the junior creditor's remedies arrive after the outcome has been determined. This is why a junior lender's real protection is its position in the waterfall rather than the list of things it is entitled to do.
Worked example
A mezzanine lender is not paid its interest. Its own default is live and it would like to accelerate.
The intercreditor imposes a standstill and a payment block. For the length of that period it can do nothing but watch the senior lenders decide whether to restructure, sell or enforce.
If the senior group runs a sale during the standstill, the security agent's release powers can strip the mezzanine claim from the assets sold, and the mezzanine lender is left with whatever the waterfall gives it out of the proceeds.