COVID-19 – Debt Structuring & New Funding for Companies
Things to consider if your Business is looking for Debt Restructuring and New Funding as a result of COVID-19 and Potential lockdown/lockdown
According to the World Bank, COVID – 19 pandemic is testing the limits of societies and economies across the World, and African countries are likely to be hit hard. In that vein, the pandemic has impacted many businesses in Africa and as such companies and businesses are considering restructuring of their debts as a way of cushioning themselves from financial distress and possible insolvency.
In view of the above, our banking and finance department has developed points that are critically crucial when you are considering your debt structure including the opportunity to potentially access new funding. These points are important at this juncture as you plan for business continuity in light of the potential lockdown. They will still be relevant even during and after the lockdown.
2. Points for your consideration
Check your borrowing documents to ensure that you are complying with any disclosure covenants, especially in relation to material financial change.
Check existing financing agreement to identify whether there are any restrictive covenants on future borrowing or which require the consent of existing lenders before incurring further debt.
Review the documentation of your current loan facilities and ensure that you are complying with any requirements such that you are not in default. If you are in default of any provision of the loan agreement, please seek for legal advice. An event of default will usually give the lender a right to take steps torecover its debt including enforcing any security interests.
Review any financial covenants which may affect your borrowing capacity. These could include maintenance of the thresholds for the following ratios: (i) Debt to EBITDA (ii) Debt to Equity (iii) Debt to Assets. There might be more financial covenants applicable to your facility.
If your facility agreement has a clause on Force Majeure; frustration or one that relates to a Material Adverse Change, it is important to seek legal advice on circumstances and procedures for triggering of such clauses
If you think the company has become insolvent, it is important to consider voluntary liquidation (winding up). We encourage you seek for legal advice on this.
Generally, it is important to seek legal advice in relation to your options during these uncertain and challenging times.
Should you require our services on any of the above, kindly contact us.
This publication has been prepared for information purposes only, and it does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Afrilex Associates, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.