by Michael Hanley , Tim Waghorn June-11-2020 in Banking & Financial Services, COVID-19

As restrictions imposed due to COVID-19 are now being lifted, businesses are actively adjusting to the new normal and the most effective method of trading during this period and into the future. A key component of this strategy for the vast majority of businesses with debt obligations, will be to open lines of dialogue with their lenders in advance of the cessation of moratorium periods.

Why Now?

We have previously considered matters for borrowers to be cognisant of in preparing for discussions with their lenders - the article can be accessed here. Now that parties have had time to consider the impact of COVID-19 on their businesses, their financial arrangements and plans to restart trading, the importance of commencing discussions early should not be underestimated, given the volume of amendments to existing loan arrangements that will be required. The peace of mind in knowing that required amendments have been documented will allow for full concentration on other vital aspects of trading at what will be a crucial time in the recovery of so many businesses.

Payment moratoria granted by Irish lenders are broadly co-terminus, lenders are tasked with considering and assessing their entire portfolio of loans benefitting from moratoria in the context of regulatory reporting and capital costs. Early mover negotiations agreeing terms and documenting these before the end of the moratorium terms seems to be the prudent course of action.

The rather extreme but salutary example of what can happen to even the biggest household names if appropriate waivers/amendments are not settled in due time, was evidenced in the recent Chapter 11 filing of Fortune 500 company, Hertz. Hertz was unable to comply with covenants in its loan documentation. A waiver of covenants had been granted in March and April but was not agreed to in May and, as a consequence, Hertz fell into default and has now filed for Chapter 11 bankruptcy. It would appear that the impact of COVID-19 on Hertz with the virtual disappearance of vacation travel, business travel and in driving generally (due to restrictions on movement), as well as a high cost base in relation to its assets (vehicles) and reduced operational income, amounted to the perfect storm. It is true many companies are not affected to this extent. However, early assessment of the likely impact of COVID-19, any required adjustments to companies’ financial terms to ensure their ability to comply, and commencing early, open dialogues with lenders to agree and document these adjustments is prudent action to take to avoid the fate Hertz faced.

Waivers and Amendments Requiring Consideration

The established approach for a waiver and amendment would be for a request to be made by the borrower which is subsequently reviewed with a view to being approved or negotiated by the lender. As we have previously written, a borrower should consider where it may be facing difficulties in complying with provisions of its loans and be as specific as possible in its requests. Although the precise scope of a request will depend on the particular facilities and commercial factors connected with it, there are likely commonalities that will fall into requests including:

  • adjustment to payment dates in respect of both interest and principal with possible amendments to cater for revised amortisation schedules, which may include extending the term of the facility and addressing any necessary capitalisation of interest;
  • waiving any formal non-payment breaches arising due to interest and capital repayment moratoriums;
  • waivers of non-performance under financial covenants. Parties will need to consider whether there are equity cure provisions that can be used (both legally and practically) and whether waivers of specific tests are required. Challenges that may arise in terms of data available to a borrower may need to be considered; and
  • any amendments required where there are overdraft, revolving facilities or ancillary facilities which may still fall to be drawn and where these would otherwise be draw-stopped.

Parties may also need to consider factors external to their relationship with the lender arising from COVID-19 that could affect compliance with loan terms. For example, an obligation to deliver accounts or audit reports assumes that the borrower’s accountants and auditors continue to be able to meet timelines.

Internal legal or commercial policies may affect the assessment of what amendments/waivers are appropriate, how these can be documented and whether there are other conditions (for example, additional credit support) that may be required.

Whilst we would expect that this process will continue as lenders assess the requests and future performance of their borrowers, it is likely that the volume of requests will be high and parties need to engage now to ensure requests can be considered in advance of the cessation of moratoriums.

Documenting Amendments and Waivers

Whilst COVID-19 hasn’t changed the fact that amendments and waivers can be either documented by amendment letter/agreement or by way of an amendment and restatement of existing documentation, both legal and practical considerations need to be taken into account:

  • bilateral facilities are likely to be capable of amendment by agreement between borrower and lender but if there are any arrangements in relation to subordinated or other junior (or senior) debt there may be terms applying in relation to this debt that will need to be addressed;
  • the role of the facility agent in respect of syndicated facilities is likely to be more important than ever in terms of liaising with the syndicate as to the requisite level of consents and agreeing whether amendments can be effected using the provisions usually contained within LMA syndicated facility agreements permitting the facility agent to effect/agree these on behalf of the other finance parties and the principal obligor to effect/agree these on behalf of other obligors (individual lenders may have policy positions in terms of this approach);
  • if the loan is secured, a review of the security package may be required to determine if it will continue to secure the amended or amended and restated facility; this may require input in relation to documentation governed by laws other than those governing the principal loan document;
  • practically, it may be difficult given continued uncertainties as COVID-19 restrictions lift, to determine (or agree) how a loan relationship may need to be “finally” reset and multiple amendments may be required. In such a scenario, effecting repeated amendments and restatements would seem to be unnecessarily cumbersome and the need for multiple amendments may push parties towards a form of documentation that can be adapted and adopted repeatedly to make multiple amendments before concluding with a final amendment and restatement. How such a scenario will be treated from an internal risk and capital weighting perspective will need to be examined as this may affect a lender’s ability to take a particular approach; and
  • where loan arrangements are linked to other underlying contracts that are tied to their repayment, benefit from hedging arrangements are subject to credit support under documentation that is in place for a defined term extension and/or amendment of these contracts/documentation will need to be addressed as well as loan agreement arrangements. This may involve engagement with third parties which could affect the time required to implement loan agreement amendments/waivers.

Actions to Take

Whilst the approach in relation to syndicated facilities may differ in terms of both timing and process depending on the make-up of the particular facility, what is certain is that in respect of bilateral facilities, where the clock on the second three month moratorium period (where applicable) has begun to tick, the following three actions are imperative to guiding businesses though this challenging time:

  1. Early engagement: early engagement between borrowers and lenders to start the process of addressing issues in financing arrangements is needed.
  2. Borrower assessment: borrowers should be assessing their loan arrangements carefully to enable early engagement with lenders and address the changes that will need to be sought and agreed to put loan arrangements back onto a performing footing; and
  3. Effective and efficient documenting: given the anticipated volume of amendments required to loans across the board and the need of borrowers to make best use of their financial resources, effective and efficient documentation of amendments and waivers will be required.


If you wish to discuss any of the issues raised, please contact Michael Hanley or Tim Waghorn at Hayes solicitors. 

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