Minimum Liquidity Credit Agreement

Approval fees and margin increases. It is not surprising that borrowers had to pay for the newly found respite, as part of their credit contracts, in shares of increased consent fees and interest margins. In the last amendments, we saw a one-time approval fee (usually 0.25% to 0.40 per cent). and/or increases in minimum interest rates, applicable margins and unused employment rights (including non-application of progressive leverage-based non-application) over the duration of the period of the waiver of financial agreements. Most credit contracts have some kind of significant negative effect (or substantial adverse change) presentation. Many questions have been raised by both borrowers and lenders as to whether the blocking restrictions, which are currently widespread in the United States and many other countries, and the resulting effects (in terms of closures and suspensions of many businesses and the resulting revenue losses) have had a major negative effect that would allow lenders to refuse a decline or accelerate credit. “A lot of lenders say that no matter what companies earn, so leverage doesn`t matter. What matters is how much cash a company has, so the lender knows how much track a business has before there`s a problem,” Kahn said. The definition of what has major negative effects will vary considerably in credit contracts and should be carefully reviewed. The material denouement generally refers to significant negative effects on (1) the borrower`s commercial or financial situation, (2) the borrower`s obligations and/or (3) the rights and means of recourse of the representative.

In some cases, one or more of these members may not be applicable, which limits the scope of the analysis. Other considerations include: some lenders may be willing to provide additional liquidity to borrowers in the form of a 364-day facility or some other form of loan or debt allocation. This may, in some cases, trigger an MFN pricing system under existing credit contracts. Since prices in this troubled market may be higher than when the borrower absorbs the existing facility, this option can be costly. However, this may be acceptable to borrowers when such a facility can be documented on a relatively fast schedule, without the need for a marketing element, and provide liquidity until cheaper options can be called. Disney25 (LIBOR margin between 0.875% and 1.5%), Cigna26 (LIBOR margin between 1.125% and 1.625%) and Honeywell27 (LIBOR margin between 0.750% and 1%), have recently concluded, among other things, such 364-day maturities. Other entities that were received during the COVID 19 crisis are Textron,28 United Fire – Casualty Company,29 Tyson Foods,30 and Becton, Dickinson and Company.31 “A liquidity contract is a good measure to measure the financial health of a struggling or most stressed borrower,” said Gary Creem, partner at the law firm Proseuer. “It provides downside protection for a lender by serving as an early warning signal for other financial difficulties, while providing the borrower with the flexibility to recover from a temporary period of financial hardship.” Since the beginning of the crisis, borrowers have taken different approaches to access to liquidity. These include managing an existing facility, modifying its facilities or entering new facilities with the new landscape in mind. As described below, each approach poses different problems and, in some cases, overlaps.

In addition to the withdrawal of collateral, many borrowers affected by the COVID-19 pandemic have begun modifying their existing credit documents to allow for suspensions of relief, federal agreements or depreciation and/or increases in commitments or incremental facilities, and/or have attempted to obtain the necessary liquidity through new facilities.