As a result of the negative impacts of COVID-19, lenders are receiving large numbers of requests from borrowers for capital repayment moratoriums and other emergency amendments to existing facilities.
Many of these facility agreements have been prepared by external counsel using Loan Market Association or their own templates. In these circumstances it is important that any amendments are dealt with by external counsel in as simple and cost effective manner as possible.
Points to consider:
How to document the amendment?
Most amendments can be effected by a simple amendment letter, amending the relevant provision in the facility agreement. This will need to be signed by the lender and the borrower for the amendment to be valid. However, it is possible that the changes may take effect as a unilateral waiver by the lender, even if the borrower is unable to sign.
Do guarantors need to consent to the amendment?
Ideally guarantors should consent to any amendment to the facility agreement. This can be achieved by simply getting them to provide their consent by countersigning the amendment letter. However, in circumstances where guarantors are unable to sign (for example, lack of availability of signatories through illness or otherwise) it may be possible to proceed without obtaining this confirmation.
The vast majority of amendments currently being requested from lenders (for example capital repayment moratoriums, interest rate and fee reductions, and covenant waivers/resets) are to the benefit of both the borrower and the guarantor. So commercially, it is very unlikely that a guarantor would ever seek to challenge such an amendment in the future on the basis that they had not consented to it at the time. Additionally, most standard form guarantees contain “all monies” and indemnity provisions, which the courts have stated will protect a lender making amendments to a facility of the nature suggested above.
Are any other documents required?
In normal circumstances, board minutes, a directors’ certificate, and possibly shareholder resolutions would be required when making an amendment. This is to make completely sure that the borrower (and any guarantor) has the capacity to enter into the amendment, and the person signing for them has been duly authorised to do so.
However, given the nature of the amendments proposed and the current need for urgency, a commercial view can be taken. A lender still has fairly wide ranging protections pursuant to the Companies Act 2006 (s.39 and s.40) which allow it to assume that a document signed by a company in accordance with the Companies Act has been duly authorised. In most circumstances, this should enable a lender to proceed with the amendment, even if these additional supporting documents are not obtained. You should, however, do a company search and solvency checks to ensure that no insolvency steps have been taken.
Are there any other lenders involved?
You should consider whether there other lenders (senior, mezzanine or junior) who have advanced funds to the borrower. If so, you may have signed up to arrangements with them that should be reviewed before your facility agreement is amended.
For example, an existing intercreditor agreement may need to be checked to ensure that it permits you to postpone capital repayments under your facility (which commercially may have the effect of locking in finance from junior lenders for longer). In syndicated arrangements, a capital repayment holiday may require the consent of all of the lenders in the syndicate.
Can documents be signed electronically?
Given the current requirement for most people to work from home, issues surrounding whether documents can be signed by e-signature are coming to the fore. In most cases, e-signature is an acceptable method for signing an amendment letter. This can greatly assist in getting these amendments documented as quickly as possible. More information on remote execution of documents is available here.
Blake Morgan are available to assist you through the process of documenting these amendments. If you have any facility agreements that you may need amending (pending credit approval or otherwise) then please contact Steve Cole or Kath Shimmin.
Enjoy That? You Might Like These: