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Troubled Loans as a result of COVID – 19. What lenders need to do?

Author: Crispin Mwebesa
Dated: April 15, 2020
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In the best of times, complex debt restructuring can be a very challenging process. But in the current environment, in the midst of a COVID – 19 outbreak, such debt restructuring are likely to become more vexing.

It is widely reported and documented that COVID – 19 has decreased economic activities of which could push certain companies into debt restructuring or insolvency proceedings. Some of our clients are seeking advice around debt restructuring and insolvency.

Last week, I updated you on some of the points that Borrowers need to consider during these challenging times.

In the same vein, we wish to update you on some of the points that Lenders need to contemplate when considering debt restructuring.

  1. Review and Monitoring of the Credit Portfolio; Lenders need to critically look at several distinct but interrelated factors around each facility in its credit portfolio. These are financial business/economic, legal and strategic. Assessment of these factors will inform the lenders about the financial health of their borrowers; their capacity to service their debt obligations, remedies available under the lending documents, validity of the loan agreement, security documents and if there are challenges around enforcement of the securities and or insolvency proceedings.
  2. Consider the available options. These include reservation of rights; charge default interest (penalties); grant waivers to avoid potential event of default; restructure the debt; initiate recovery proceedings; enforcement of security and or insolvency proceedings.
  3. Cross defaults: Depending on the existing lending documents, triggering of one facility may result in triggering cross defaults across other facilities to the same borrower or borrower group by other lenders as well. In this regard, Lenders must assess this option and what it takes to effect cross-enforcement.
  4. Consent Requirements: Prudently and taking into consideration of the prevailing economic situation, Lenders need to exercise caution when approached for consents of incurring new debt by borrowers.

The above are some of the points that lenders need to take into consideration.

Should you require our services on any of the above, kindly contact us.


Important Notice

This publication has been prepared for information purposes only, and it does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Afrilex Associates, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.