Credit: Companies begin process of tapping bank revolvers
admin | March 20, 2020
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Business owners and companies that require additional sources of liquidity to ride out the impact of the coronavirus may first turn to bank revolvers. Unfortunately that source of funding may prove more difficult to tap than expected. Bank regulators are providing additional flexibility around capital rules for banks to support lending to households and businesses. However it may be the financial covenants embedded in bank revolver agreements that are the material negotiation point. Law firm Davis Polk in response to increased questions from corporate clients, released a one page alert on Thinking about liquidity and funding alternatives summarizing some of the legal issues banks may need to evaluate when extending credit under a revolver. One of the determinations a bank may need to make before allowing the drawdown is that there has not been a material adverse event (MAE) and that the borrower is solvent. Any borrowing will impact financial covenants on other debt and the company must ensure that the additional borrowing will not lead to a potential covenant default. Sources: NYFRB, Davis Polk, APS
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