We received a call to our support line recently from a www.RealDealDocs.com subscriber concerning capital support agreements.  Capital support agreements, also know as capital call agreements or just support agreements, are agreements by an investor obligating that entity to make investments in another company, most often a borrower, given a certain set of circumstances.  The subscriber, an attorney in New York, was looking for some samples to leverage for a current client.

 

We discussed how to find a number of sample capital support agreements on both our agreements and contracts preview site as well as the member site from across the millions of legal agreements and clauses that have been organized for easy access, and we found a number of these capital support agreements in about ten seconds.  We also briefly talked about how and when they are used. 

She pointed out that she had worked on a couple similar deals in the past year given the illiquidity in the credit markets, and that there are several specific reasons to use them as a means to assist a borrower to obtain funding without obtaining a letter of credit or other form of loan guaranty.  This is particularly when there is a wide divergence between the underwriting requirements of the lender, who might be looking for more favorable leverage or interest coverage requirements, and a shareholder-backer of the borrowing entity, who is in essence guarantying the financial performance of the borrower over a period of time.  For example, early stage or venture backed borrowers, or in for borrowers in the midst of loan workout situations, frequently don’t have the ability to meet traditional lender capitalization requirements.