We’re all in it together? Financing in a time of change..
We’re already seeing investors, management teams and banks agreeing financing alternatives as well as negotiating the meaning of existing financing terms in response to COVID 19.This is to address likely shortages in working capital, loss of revenues and profits, as well as in some sectors to enable inventories to be financed and increased demands satisfied. In many cases this means that prior revenue and EBITDA projections have been ripped up and new controls put in place on costs and cash conservation whilst businesses also put in place facilities to take advantage of market opportunities.
As lawyers, over the last few weeks this has involved, amongst other things: (i) reviewing and advising on the impact of material adverse event clauses and the impact of carve outs such as for macroeconomic events and COVID 19: (ii) considering specific clauses to give borrowers more leeway to absorb the impact of losses to their businesses (for instance, by an add back of estimated revenues).
More generally, the UK Government is providing additional liquidity to SMEs through a number of mechanisms including the temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, which will launch in the week commencing 23 March 2020 to support businesses to access bank lending and overdrafts. The Government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value. Businesses can access the first 6 months of that finance interest free, as government will cover the first 6 months of interest payments.
We will continue to update you on what we are seeing in the market during these exceptional times.
Find all our Covi-19 related advice here.
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Charles Claisse is the head of corporate
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