27th April 2020

Funding Requirements – Practical Steps for Businesses in Light of Covid-19

With COVID-19 having a significant economic impact on businesses across the spectrum, it has become necessary for all businesses to closely assess their financing requirements and current arrangements.

KEY PRACTICAL STEPS FOR BUSINESSES:

  • Review cashflow requirements – If a significant shortfall is predicted, assess whether business can absorb this or whether additional financing may be required. Businesses with existing debt should ensure that they have the funds necessary to meet upcoming scheduled payments of principal, interest and fees. If cashflow is deteriorating, borrowers should consider approaching their lenders to seek to defer scheduled payments under existing financing arrangements or perhaps seek a wider postponement or re-arrangement of their debt.
  • Consider steps which can be taken within the business to preserve cashflow – This could include reducing or delaying expenditure, injection of shareholder funds or a disposal of assets. Many of these aspects may be short-terms solutions and may have implications for existing finance arrangements, if there is a requirement to seek consent from existing lenders to such proposed arrangements.
  • Review funding requirements – Borrowers should assess their ongoing funding requirements and, if they have additional unutilised facilities in place, confirm that they can satisfy any conditions attached to utilising these facilities.
  • Review existing facility agreements and security – Borrowers should review their existing loan and security agreements to ensure that they can continue to comply with their obligations and, in particular, takes steps to ensure that an event of default will not arise. We will be publishing a separate blog on this aspect shortly.
  • Review logistical arrangements and practicalities – Businesses should consider whether bank notices and signing formalities require to be amended to take account of new working practices. Does remote working give rise to difficulties or delays in complying with information delivery? Do contingency measures require to be put in place?
  • Get advice – Speak to your lending team and advisers for early advice. Matters that businesses will need to consider ahead of such discussions include:
    (i) Is the business eligible to receive support under the COVID-19 government backed loan arrangements?
    (ii) Is short-term relief, such as delaying interest and other scheduled payments or one-off waivers of covenant breaches, going to be sufficient?Or would permanent amendments to the loan arrangements be more appropriate?
    (iii) Could an injection of equity funds be used to remedy a financial covenant breach? Would owners/investors be willing to do this?
    (iv) Does the borrower have anything to offer to incentivise the lender to agree to amend or restructure the facility (for example, the provision of new security or guarantees or an increase to the margin)?
    (v) What restrictions are there in the existing debt documents on incurring further financial indebtedness and does the borrower need any consents to incur further debt?
    (vi) What impact would the additional borrowing have on any existing financial covenants?
    (vii) Where new facilities are sought, ensure that these are structured so that funds can be accessed quickly – short notice periods for drawing requests, signed by 1 authorised signatory and with limited conditions precedent for drawdown.
    (viii) Try to avoid early prepayment fees or utilisation fees that kick in too quickly to give borrowing flexibility.

If you require assistance on reviewing your existing loan arrangements, or advice on possible restructuring options, then please contact any member of our corporate team.

Suzi Low,
Associate Solicitor
Corporate & Commercial
Blackadders LLP

www.blackadders.co.uk

 

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