DEFINITION of 'Workout Agreement'
A mutual agreement between a lender and borrower to renegotiate terms on a loan that is technically in default, so as to avoid foreclosure or liquidation. The renegotiated terms will generally provide some measure of relief to the borrower in terms of reducing the debt-servicing burden through accommodative measures provided by the lender, such as extending the term of the loan, rescheduling repayments and so on.
BREAKING DOWN 'Workout Agreement'
A workout agreement is only possible if it is in the interest of both the borrower and the lender to work things out. While the benefits to the borrower of a workout agreement are obvious, the advantage to the lender is that it avoids the expense and effort of recovery efforts such as foreclosure.