Moses & Singer LLP

Credit Agreement Checklist of Issues To Consider In Light of the Ongoing Pandemic

May 5, 2020

By: Michael Evan Avidon and Rachel S. Kwon

The COVID-19 pandemic presents an unprecedented challenge to business liquidity and solvency.  This checklist is designed to help businesses review existing credit agreements, consider restructuring options and negotiate new agreements in order to manage the current situation and move forward. 

The WSJ/Vistage Small Business CEO survey reports that, nationally, during March, 74% of small businesses suffered revenue declines and virtually all small businesses faced significant business disruptions and a reduced workforce in some way.  As of the first week of April, CEOs of 65% of small businesses faced short-term liquidity challenges and about 60% expected their revenues, prospects and profitability for the next 12 months to deteriorate.  CEOs of 46% reported they are looking for funding from bank credit lines and 29% intend to restructure or defer debt.  


  1. Maturity and Expiration Dates

    • Any imminent maturity dates, expiration dates or mandatory prepayment dates (e.g., prepayments to correct a borrowing base deficiency)?

    • Any auto-extension or auto-renewal clauses where consideration should be given as to whether to give notice of non-extension or non-renewal?  Consider any relevant credit (e.g., changes to creditworthiness of the borrower), legal or operational issues (e.g., processing, delivery or notice mechanisms) before determining whether to permit the auto-extension or auto-renewal to proceed.

    • Any non-automatic options in the agreement to extend or curtail any maturity or expiration dates or to increase or decrease any commitment amounts?  If so, consider whether to exercise such options.

    • Any letters of credit that have been (or will be) permitted to extend beyond the commitment termination date?  If so, is cash collateralization or other credit support required or acceptable? 

  2. Interest Rates and Fees

    • Review the applicable interest rates and fees to see whether they make sense in light of current and expected market conditions and the condition and prospects of the borrower.  Consider any options to:  prepay during an interest period (including make-whole provisions, break funding charges, premiums or penalties); elect different interest rate options (e.g., LIBOR vs. Base Rate or one-month vs. three-month LIBOR); or change rates (benchmarks, margins or payment dates).  

    • Any default interest rate, overdue rate or late payment fee?  

  3. Defaults

    • Has a default or an event of default occurred or is one likely to occur (e.g., non-payment or late payment, breach of financial test covenants, breach of representations and warranties, failure to timely meet financial reporting requirements (such as delays by outside auditors), breach of other covenants, cross-default or other defaults)?

    • Are the defaults objective in nature or are such defaults subjective in the lender’s sole judgment or discretion such as material adverse effect/material adverse change defaults?

    • If a default has occurred and is continuing, or a default appears likely to occur, should an amendment or waiver be sought or granted?

  4. Representations and Warranties          

    • Were any disclosure requirements triggered in relation to the COVID-19 pandemic or might they soon be triggered?  Has the relevant information been disclosed accurately?

  5. Covenants

    • With respect to financial reporting obligations, review deadlines to ensure that reports, operational certificates, etc. can be prepared and submitted remotely (if necessary), on time.  If a party is considering using any extension permitted by the Securities and Exchange Commission or any other governmental authority (United States or foreign) for reporting or filing requirements, would invoking such extension require notice or result in breach or default under the agreement?

    • Can financial test covenants be met or should adjustments be considered to test hurdles, carve-outs, add-backs and measurement dates?

    • Do the borrower’s accountants plan to express a “going concern” qualification?  

    • Must notice be provided for changes or events such as a downgraded credit rating or the occurrence of an event that may constitute a material adverse effect, breach or default?

    • Any “anti-hoarding” provision?  If not, should one be added?

  6. Place of Payment

    • Does the stated place of payment work operationally given closures and disruptions due to the pandemic?

  7. Collateral

    • Have all contemplated security interests been granted and perfected and do such interests have the contemplated priority?  If not, what steps are necessary or advisable to address any deficiencies?

    • Should additional collateral be sought or granted and, if so, is the grantor likely to stay out of bankruptcy proceedings for a period longer than any applicable preference period?

    • With respect to obtaining or perfecting additional security interests, are there any applicable legal restrictions or possible administrative or operational delays due to the pandemic?  Any third party or other consents required?

    • Will the secured party have the bandwidth and operational capacity to realize (in a timely manner) on collateral if an event of default occurs?  

    • Has the secured party considered possible practical limitations on its rights upon an event of default (e.g., right to sue, in light of the restrictions on court proceedings)?

  8. Choice of Law and Jurisdiction

    • Does the agreement contain a choice of law or forum selection clause?  Does that forum still work for the parties given travel restrictions, court closures or restricted/delayed proceedings?

    • If multiple courts or fora may have jurisdiction, which may be more or less favorable?  Are there waivers or objections to venue and inconvenient forum?

    • Are there practical means to effect timely service of process if needed?

    • Has there been any recent emergency legislation (temporary or otherwise) that may impact a party’s rights and obligations under the agreement?

  9. Syndicate Lenders

    • In a syndicated credit facility, what are the defaulting lender provisions?  Is a “defaulting lender” objectively defined (and not, for example, determined by the agent)?  What is the grace period, if any, for potential lender defaults?  Are risk allocations intended by those provisions still acceptable to the other lenders and the borrower?

    • Have the lenders and borrower evaluated the likelihood of a lender defaulting on its obligation to fund? 

  10. Electronic Signatures/Notices/Delivery

    • Does the agreement permit electronic signatures, notices and/or delivery, or are paper documents prescribed?

    • Are any required or permitted means of communication under the agreement currently unavailable or unreliable or likely to become unavailable or unreliable?

    • Does any recently-enacted or emergency legislation in the applicable jurisdiction impact the acceptability or sufficiency of electronic signatures, notices and/or delivery?

  11.  Amendments/Waivers

    • Review the provisions for amendments/waivers to see what consents are needed.

  12. Successors and Assigns

    • Do lenders have the ability to assign or grant participations in their rights under the agreement?

    • What consents, if any, are required?  What restrictions or notice requirements apply?

    • What confidentiality restrictions apply?


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