In FAQs: COVID-19 – Potential Impacts to Borrowers and Lenders, we noted that many borrowers likely would at least consider fully drawing down their revolving lines of credit now even if they did not yet have an immediate working capital need for the loans. The impetus may be to build a cash cushion while the borrower can still satisfy all drawing conditions for an advance. We have heard anecdotally that many commercial borrowers are, indeed, fully drawing down their lines of credit, with lenders funding their full commitments. We have also heard anecdotally that some commercial borrowers may be reluctant to spook their lenders with full draw requests now. This could be more the case with borrowers that may already have been distressed before the COVID-19 crisis or those with lower middle-market credit facilities that sometimes provide lenders with broader discretion to terminate a commitment, such as compliance with a “no material adverse effect” condition to borrowing. Our FAQ went into some of the factors for borrowers to consider before requesting full drawdowns now, including looking to where the borrower deposits the proceeds (likely with its lender).

Additionally, with respect to companies looking to access government loans or other support – whether through the expanded Small Business Administration (SBA) loan program, the proposed forgivable loan program for certain smaller companies or other programs – lenders and borrowers should consider proactively putting in place any required amendments or consents necessary under existing credit arrangements in order to allow prompt access to such support when appropriate. Financial covenants, permitted debt definitions, permitted investments and other terms of loan documents may need modifications to allow borrowers to access this government relief without technical defaults. We have heard that lenders in some cases are encouraging borrowers to access SBA loans, payroll loans or other support when available. A lender may be helpful to a borrower in navigating the applications for these funds, when available.