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Covid–19 coronavirus: key considerations for corporates when considering your debt facilities

As the impact of the Covid-19 pandemic deepens and a prolonged downturn in financial markets looks increasingly certain, we have been speaking to a number of corporates that are reviewing their banking facilities to ensure they have enough liquidity to weather the storm. If you are considering obtaining additional funding here are some key aspects to consider.

  • What restrictions do you have in your existing debt documents on incurring further Financial Indebtedness and do you need any consents to incur further debt?
  • What impact would the additional borrowing have on any existing financial covenants?
  • Ensure the facilities are structured so you are able to access funds quickly – you need short notice periods for drawing requests, which are able to be signed by 1 authorised signatory and with limited conditions precedent for drawdown. 
  • Banks arranging new facilities may require that they are the "last draw", and other facilities are fully utilised first.
  • Try to avoid early prepayment fees or utilisation fees that kick in too quickly.
  • Check if the Lenders have set off rights in respect of credit balances that are held with them and ensure these rights apply only if an Event of Default is outstanding or later, if possible.
  • If the debt documents contain a material adverse change provision (MAC), consider how will you show that the MAC has not been triggered.
  • Focus on getting the right legal advisors acting for both you and your lenders who can deliver speed of execution.
  • Finally, do consider carefully if you need the additional funds.  Drawing funds for no immediate reason could make lenders think you are in financial difficulties, even if you're not.  If you have plenty of liquidity and the cash will just sit on account it may be better to engage in an on-going dialogue with your lenders, so they can support you when you really need it.  

The government has also announced a number of funding measures over the past 48 hours that you may be eligible to benefit from.


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