The playbook for publicly-traded credits has been uncannily similar during March as the effects of the COVID-19 pandemic have disrupted business as usual: “guidance withdrawn, revolving credit facility drawn and cost savings on the drawing board”. Our private company issuer clients have also been drawing on their revolving credit facilities although the true scope of this activity across the market will only become measureable following March 31 corporate reporting.

Given the forecasted reduction in revenue and profits resulting from the government enforced lockdowns, this is prudent liquidity management for companies at all levels of balance sheet strength. For the most part, issuers are drawing-down on their existing revolving credit facility capacity which is generally linked to a fixed amount under the permitted “credit facility basket” in their bond indentures. However, certain issuers are looking to raise additional debt above their existing revolving commitments as they assess their near- to medium-term liquidity positions.

Bank and fund lenders are also looking for opportunities to deploy capital while mainstream event-driven financings are at low levels in line with the reduction in M&A activity as a result of the uncertainty surrounding the economic impact of the COVID-19 pandemic.

Accordingly, in this March edition of “In the Know” we look at some potential short- and medium-term levers that issuers can pull to access additional super senior or structurally senior liquidity under a “typical” high yield senior secured notes indenture and consider what options issuers have under their covenants to maximize (or preserve) that debt capacity.

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