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Questions for Borrowers and Lenders Amid Coronavirus Outbreak

April 02, 2020
Firm Memoranda

As borrowers and lenders grapple with a new economic landscape in the wake of COVID-19, borrowers are faced with the need to secure sufficient liquidity in the event of an extended recession that could have long-term effects on credit markets. To that end, companies may try to draw on all credit lines currently available to them (including outstanding revolvers). At the same time, lenders may be hesitant to extend credit in a market where there is substantial uncertainty about their ability to be repaid. The operative provisions of each borrower’s loan agreements will be key to determining if and to what extent lenders must provide additional credit. The same provisions may also have other significant consequences for borrowers and lenders, such as determining whether the change in economic circumstances can be a basis for claiming loan breaches and the acceleration of debt. This article outlines important considerations for borrowers and lenders in determining the availability of credit, the risks associated with breaching existing funding agreements, and some of the potential defenses available in these circumstances.

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John Quinn
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