Credit Agreements Amendments to Consider in Light of Covid-19

As the world continues to grapple with the impact of the COVID-19 pandemic, businesses are seeking ways to mitigate the financial impact of the crisis. One area that has come under scrutiny is credit agreements, which form the backbone of many companies` financial operations.

In light of the current economic climate, companies should consider making amendments to their credit agreements. Here are some of the key areas to consider:

Loan terms and payment schedules: COVID-19 has caused significant disruption to many businesses, and as a result, they may struggle to meet their loan repayments. Companies should review their loan terms and payment schedules, and consider extending the repayment period or deferring payments. This can provide much-needed breathing room for cash-strapped businesses.

Covenants: Covenants are terms in a credit agreement that require the borrower to meet certain financial or operational targets. However, the pandemic may make it difficult for borrowers to meet these targets. Companies should review their covenants and consider renegotiating them to provide more flexibility.

Force majeure clauses: A force majeure clause is a provision in a contract that excuses a party from performing its obligations due to unforeseen circumstances beyond its control. COVID-19 is a classic example of a force majeure event. Companies should review their credit agreements to ensure that they include adequate force majeure clauses.

Material adverse change clauses: A material adverse change (MAC) clause allows a lender to call a loan if there is a significant change in the borrower`s financial position. COVID-19 may be considered a MAC event for many businesses. Companies should review their credit agreements to ensure that they include appropriate provisions that protect them in the event of a MAC.

Documentation requirements: Due to the pandemic, many businesses are operating with reduced staff or working remotely. This may make it difficult to produce the documentation required by lenders, such as financial statements or audits. Companies should review their credit agreements to ensure that they can meet these documentation requirements, and consider negotiating more flexible terms if necessary.

In conclusion, COVID-19 has caused significant disruption to businesses worldwide. By reviewing and amending credit agreements, companies can protect themselves and ensure that they have the financial flexibility they need to weather the storm. It is important to work with experienced legal and financial professionals in making any amendments to ensure compliance with applicable law and regulatory requirements.