How to avoid automatic loan repayment upon the change of control?

January 24, 2025

by an investor from University of Pennsylvania - The Wharton School in Claremont, CA, USA

What strategies or solutions has anybody used to navigate the issue of automatic loan repayment triggered by a change of control during a majority investment? I have an opportunity to invest growth capital in a company where I'll obtain majority ownership. The existing owner needs a large sum of capital urgently in order to capture some organic and inorganic opportunities. However, as a foreign controlling shareholder, I'm not qualified to help the company to assume the current loans or new loans in the US, which presents a challenge. Any advice or insights on how to handle this situation without giving up majority control would be greatly appreciated!

Reply by a searcher
from Baylor University in Hampton, VA, USA

Have you explored a stock sale? This would be a "transfer" of the operating company vs. an asset sale where there is a "newco" that the assets transfer to. Usually the transfer of the operations from one company to another is what triggers most 'change of control" clauses that I've seen. If you can "silently" transition via stock sale and the only thing that happens is that shareholders change, most lenders will be none the wiser since there isn't anyone trying to change bank accounts, or retitle business assets.

Reply by a professional
from University of Michigan in Detroit, MI, USA

Hi Anon, the answer depends on the terms of the loan agreement. Depending on the circumstances, there may be no way around it (other than using your investment to pay off the loan). And it may be the case that you'll need to engage the lender directly. Happy to discuss further. Feel free to reach out at redacted

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