Under most loan agreements, as a condition to borrowing a borrower must certify in writing that no MAE has occurred. Borrowers should nonetheless be aware of some important issues and considerations prior to drawing down a revolver.Ī gating issue for any borrower seeking to draw down on an existing line of credit is whether the borrower can meet the loan agreement’s borrowing requirements, in particular the “material adverse change” or “material adverse effect” (MAE) representation. Similarly, companies with sufficient cash for the near term are nonetheless considering drawing down on their revolvers as a precautionary measure to ensure they have enough cash on hand to meet obligations and outlast the COVID-19 crisis.ĭrawing down a revolver may indeed be one of the best ways for borrowers to meet current obligations and preserve their cash position as they ride out the adverse economic impact of the pandemic. As a result of this cash crunch, many companies with access to existing credit lines are considering whether to draw down on the unused availability to meet their current obligations. Meanwhile, the on-going obligations that companies incur in the ordinary course of business continue to accrue and remain due and payable. In this post, we examine one of these key issues in greater detail, namely drawing down on existing lines of credit, or ’revolvers’.Īs a result of the pandemic, many businesses are experiencing wide-spread revenue shortfall, and in some instances cash flow has ceased entirely. In a recent post, we examined the pandemic’s effect on corporate loan agreements and identified some key issues that borrowers should consider. Drawing Down on Existing Lines of Credit.
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