COVID-19: Considerations for Lenders and Credit Managers
During these stressful, uncertain and rapidly changing times, Kleinberg Kaplan’s thoughts go out to our clients and the welfare of their families and businesses. As we adjust to the continuously changing circumstances, we reach out to our many fund clients with a reminder that lenders and credit managers will need to be proactive in making sure they are prepared for a significant downturn in the business climate in general and among their borrowers in particular.
While every loan is different and each borrower unique, we suggest being particularly attentive to these areas:
- Know your loan
- Watch your loan covenants for early warning signals.
- Monitor your collateral carefully and be attentive to the reliability of valuations.
- Make sure you are getting timely financial reporting and pay attention to what you see.
- Be alert to the financial health of any guarantors.
- Know your borrower
- Make sure you understand their business model and revenue sources so you have a sense of the impact on the business.
- Understand the borrower’s supply chain and how that may be impacted.
- Be aware of your borrower’s dependence on human resources and how its personnel may be affected.
- Talk to your borrower
- Don’t wait for bad news. Be proactive in reaching out to your borrower.
- Understand your borrower’s expectations about the near-term and longer-term impact of the business slowdown.
- Ask for your borrower’s business recovery plan so you know what steps it will take to survive and then recover.
- Assess the environment
- Know where you are in the capital structure.
- Anticipate what may be asked of you.
- Assess where this loan fits in your portfolio.
This is a difficult time for everyone, but we are here to help. Please involve us early so we can assist you in preparing for what is likely to be a stressful period. Kleinberg Kaplan’s multi-disciplinary team of lawyers has broad experience advising lenders and investors in all aspects of an economic downturn and we are ready to put that experience to work for you.