Coronavirus Checklist for Corporate Financing Agreements
The global health crisis and economic impacts caused by the coronavirus are certain to be reflected in corporate financing. Now is the time to review your company’s financing agreements and think about how both the immediate circumstances and potential long-term structural changes will affect your business. We believe that the best way to deal with this crisis is to be proactive and immediately determine how to react.
Many companies are already making contingency plans, and our firm has established the C&S Corona Task Force to help with this work. The Task Force can help you with any questions you may have about financing agreements and corporate financing.
If you are working with financing agreements, we recommend running through this checklist to make sure you have covered the most important points.
- Financing covenants: Will historic or forecast loss of turnover or changes in asset valuations impact or even breach your financial covenants? How could you prepare for this in your key indicators?EBITDA definition elements: do you need agree on changes with your financiers in advance? Depending on your available business contingency measures, think about how they could impact your company’s covenant calculations (recurring/non-recurring items, how would an interruption of your company’s payment traffic impact liquidity). Keep in mind that the effects will extend over multiple quarters, as covenants are usually tested for the previous 12 months. How do potential equity cure elements function in your financing agreements and what does using them require?
- Reporting obligations: Will your financial statements or key indicators be delayed? Will delivery of documents (such as financial reporting, operational certificates or waiver requests) be delayed due to employee absences or other acute reasons? Is it necessary to disclose the impact on operations or any default, and if so, how?
- Debt service: Determine what measures you have to take to secure your cash flow. It is also a good idea to review practical issues, such as does your company have sufficient staffing to service its debts and has it made the IT arrangements to be able to effect repayments of principal and interest when due? It is worth keeping in mind that financiers are also likely to be short of resources. Have your lenders made arrangements to ensure that the current circumstances will not prevent disbursement and that waiver/amendment requests can be considered in the required timeframe?
- Event of default: Is there a risk that the current circumstances could trigger an event of default in one of your financing agreements and give the lenders the right to call in the debt? Material adverse effect (MAE): is there a risk that a MAE clause could be triggered? This is something that usually gets discussed when negotiating the loan agreement, but these are certainly circumstances in which lenders could invoke this clause. Of course, it is likely that other clauses would also give cause to call in the loan in the current situation.
- Representations and undertakings: It is worth reviewing these to make sure your company can still make and comply with them.
- Cross-default: Is your company at risk of default under any agreement due to its position under other agreements and financing arrangements?
- Insolvency: Could your company’s income drop to the point that it threatens operations? Your board should keep in mind its obligation under the Finnish Limited Liability Companies Act to register negative equity with the Trade Register without delay.
- Availability of financing; It is vital to maintain active lines of communication with your bank and financiers. What alternatives are available? The government has promised to support the SME sector with additional financing. Find out whether your company is eligible for government support, financing from Finnvera or other corresponding support.
The coronavirus outbreak is a rapidly developing situation. This information reflects the situation at the time it was published 19 March 2020 and is subject to change.
