Three Key Considerations for Addressing Financial Distress in a COVID-19 Economy

Three Key Considerations for Addressing Financial Distress in a COVID-19 Economy

  1. Review your credit facility to refresh your understanding of financial covenant requirements that may be at issue or subject to potential default in light of resulting business interruption and challenges. If there are any that present a concern, be prepared to discuss them with your lender in an effort to reach an understanding as to a waiver of the covenant requirement, a modification of the covenant benchmark, or a forbearance agreement to clarify that an exercise of remedies will not be pursued.
  2. Consider the implications of customer financial challenges and the possibility of delayed or reduced invoice payments or no payments for an extended period of time. Explore potential rights under customer agreements and/or the Uniform Commercial Code (UCC) to alter current payment terms and, possibly, seek adequate assurance of future performance in accordance with the UCC.
  3. Revisit cash flow projections and business plans to determine the potential need to modify current spending plans. Most importantly, communicate any such issues with your lender, as appropriate and keep a clear line of communication open going forward.

 

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