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Force Majeure & Impossibility of Performance Resulting from COVID-19
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The novel coronavirus (COVID-19) has battered global markets as many industries grapple with weaker demand and an uncertain outlook. In turn, borrowers and lenders may find themselves navigating credit documentation that did not anticipate such a drastic downturn, leaving forecasted cash flow (which lenders counted on for repayment) lower than the reality. While credit documentation may not specifically address a global outbreak, it will put pressure on certain provisions of a credit agreement. For example, a borrower with lower EBITDA may have unexpected difficulty paying back its loan or complying with financial covenants, which in turn will have borrowers and lenders poring over the events of default (and whether “force majeure” is applicable) and amendments, waivers, and consents sections of their agreements. Those borrowers with revolving facilities may also question whether they can bring down their “material adverse change” representation and warranty. Banks themselves must address these issues not only as lenders but as employers and regulated industries, which carry additional challenges (such as compliance with or changes to risk management policies and reporting obligations to regulators). The client alerts and related content below discuss these issues in detail.
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