Hell or High Water Contract

What Is a Hell or High Water Contract?

A hell or high water contract (otherwise called a guarantee to-pay contract) is a non-cancelable contract. A hell or high water contract specifies that the purchaser must make the predefined payments to the seller, no matter what any challenges they might experience. Hell or high water provisos tie the purchaser or lessee to the terms of the contract until the contract's expiration.

Understanding Hell or High Water Contracts

Hell or high water contracts require payment whether the great or service is working according to plan. Generally talking, hell or high water contracts are utilized when the provider of a service or product is facing a large challenge in the interest of the client. This risk can allude to the amount of capital committed. The risk can likewise allude to the risk that there is no other purchaser on the market in light of the fact that the product is highly adaptable.

In a hell or high water contract, the party who is committed to pay really faces all the risk challenges default from the seller, lessor, or lender. This can make an incentive that will prompt the obligor to take part in a transaction that they in any case could deny in view of the obligee's default risk.

The term itself comes from the everyday phrase "come what may," which is utilized to show an unconditional commitment to carry through on a course of action regardless of what conditions could emerge.

The phrase is intended to suggest that the speaker or obligee will follow through on their commitment even in the face of any serious misfortune or catastrophe that might be unchangeable as far as they might be concerned, not limited to satanic or diluvial impacts. The references to hell and high water are Biblical implications to the Biblical Hell and to Noah's flood, individually, which address historic calamities.

Special Considerations

Hell or high water contracts can be authorized even in occasions where there is some shortcoming or deformity in the property at the center of the agreement. For instance, on the off chance that a lessee consents to rent or lease a piece of equipment or machinery under hell or high water terms, they are responsible for those payments even on the off chance that the equipment breakdowns. The vendor or lessor could handle the financing part of the transaction and in any case hold a passive job concerning the equipment itself.

The lessee in such an agreement for the most part chooses the equipment they wish to acquire. The lessor then purchases the picked thing that is thusly leased to the customer. A financing agreement with hell or high water language is intended to guarantee that the lessee will pay the lessor under no dubious terms.

Assuming that there is an issue with the equipment the lessee gets, the lessor ordinarily isn't to blame in light of the fact that the lessee picked the equipment they wanted to rent. The equipment might be delivered directly from the manufacturer or provider to the lessee without the lessor truly coming into contact with it. Blemishes in the equipment might be a direct result of an issue with its manufacturing. Any guarantees with respect to the usefulness of the equipment could fall to the provider or manufacturer to satisfy.

Hell or High Water Contracts in Finance

Hell or high water contracts can be used in project finance transactions, acquisition deals, and high-yield indentures.

For instance, an acquisition deal with hell or high water language can direct the prospective buyer in the agreement to bear the burden of tending to any fundamental divestitures or litigation that could result from antitrust regulatory issues. The viability of the acquisition agreement could in this manner be tied directly to the buyer's ability to determine such matters and make room for the deal to continue.

Highlights

• A hell or high water contract moves practically all of the risk of nonperformance or default on to the obligee, and in this manner can prompt lessors or lenders to consent to transactions that would somehow be too risky for them.
• A hell or high water contract is one where the obligee consents to satisfy their finish of the contract no matter what the difficulty.
• In lease or financing contracts, this means that the lessor or borrower is committed to keep making payments even assuming the lease or financed asset is harmed or obliterated.