“Corona Clause” Crops Into Loan Documentation

Joe Rennison reported last week at The Financial Times Online that, “Lawyers are calling it the ‘corona clause’: new language that has cropped up in loan documentation giving borrowers more leeway to absorb hits to their businesses caused by the viral outbreak.

“Such terms could allow for lost revenues to be added back to calculations of profits, say analysts, helping companies to avoid breaching limits on how much they can borrow.

Borrowers have been increasingly keen in recent years to give themselves flexibility to cope with shocks beyond the normal course of business. The virus outbreak certainly falls under that description; rating agency Standard & Poor’s on Tuesday said that economic damage stemming from the virus could push default rates for US companies above 10 per cent this year, the highest since the financial crisis.”

The FT article added that, “Companies have highlighted coronavirus as a risk to their outlooks in deal documents. A regulatory filing for food company Del Monte’s $575m stalled bond deal announced earlier this month noted that the outbreak ‘could materially and adversely affect our business, financial condition and results of operations.'”

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