April 30, 2020 / 6:31 PM / a month ago

Banks seek to limit revolver usage as companies race for cash

NEW YORK, April 30 (LPC) - Banks are seeking to limit companies from accessing credit lines as the global pandemic continues to weigh on balance sheets.

As businesses seek to amend their credit agreements to ask for covenant relief or a maturity extension, lenders are pushing to add so-called anti-hoarding provisions to limit a borrower’s ability to draw down on its revolving line of credit fully.

Since the coronavirus pandemic took hold, companies including Hilton Worldwide and Ford Motor Co have drawn more than US$201bn in revolver capacity to ensure access to liquidity as the healthcare crisis interrupted supply chains, closed retail operations and forced companies to fire workers.

Banks concerned about their balance sheets are trying to limit businesses from borrowing to hold cash to prepare for an extended downturn.

“We are seeing more anti-hoarding provisions because lenders are concerned that companies will draw down on their revolvers and hold onto that cash to use later, potentially to stave off bankruptcy,” said Jessica Reiss, head of leveraged loan research at Covenant Review.

“If companies want lenders to give them concessions or waivers that they are looking for and may need to get through the current crisis, they will have to agree to tighten terms in other areas,” including the addition of an anti-hoarding provision, she said.

Investors are also looking at credit agreements for revolvers to determine borrowing capacity and whether there are anti-hoarding provisions, according to Stephen Zide, a partner focused on bankruptcy and restructuring at law firm Kramer Levin Naftalis & Frankel.

“It gives revolver banks more control to make sure the full amount is not drawn to hoard cash,” he said. “If the situation unravels or goes in a bad direction, the whole amount has not been funded.”

ANTI-HOARDING ADDITION

Terex Corp, a manufacturer of material processing products, said that in amending its 2017 credit agreement this month to extend the term of its revolver to January 2023 from January 2022, an anti-hoarding cash provision was added until December 31, according to an April 24 regulatory filing.

Transportation services company YRC Worldwide also said an anti-cash hoarding covenant was added this month as part of an amendment to its September 2019 credit agreement, according to an April 8 regulatory filing. The provision requires mandatory prepayments of term loans with the amount of any cash on the balance sheet above US$200m to the extent the condition to make voluntary prepayments of term loans under the asset-based loan facility are met.

Anti-hoarding provisions are standard in credit agreements for oil and gas companies during bouts of volatility, so the clause has taken on increased importance during the current reserve-based loan borrowing base redetermination season.

Exploration and production company Ultra Petroleum Corp said its anti-cash hoarding amount in February was cut to US$15m from US$25m for all times borrowings are outstanding under the revolving credit agreement.

YRC and Terex spokespeople declined to comment. An Ultra representative did not respond to an email seeking comment.

While banks are concerned about their own balance sheets, they do not want to limit liquidity so much as to push companies into default and hurt their recovery prospects.

“It doesn’t behoove anybody to unduly tighten terms to cause a company to default, but lenders aren’t just going to write an open-ended check without doing their due diligence and being prudent in terms of their capital,” said Scott Zimmerman, head of law firm Dechert’s leveraged finance practice.

“No one is looking to precipitate a greater crisis than we are otherwise in.” (Reporting by Kristen Haunss; Editing by Michelle Sierra)

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