Exploring the impact of flexible loan agreements on outstanding borrowings and leverage ratios, including scenarios of companies drawing on credit facilities for cash they may not immediately need, affecting maintenance covenants and calculations.
The past few weeks have seen a marked increase in businesses drawing down their RCFs. In the era of cov-lite loans, extensive use of a revolver might be one of the first indications of financial distress, or, amid the coronavirus crisis, could indicate a company's desire to hoard cash for a rainy day. In this podcast, hosts Peter Washkowitz and Shweta Rao discuss the documentary implications of RCF draws, how a business may prevent a springing financial covenant in a RCF to spring, how a business may prevent a sprung covenant from being breached and what levers lenders have to refuse a draw.
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