Using a credit agreement protects you as a lender, as it legally imposes the borrower`s commitment to repay the loan in regular payments or lump sum. A borrower may also find a credit agreement useful because it determines the loan details for its records and helps track payments. In the current economic climate, it is likely that lenders will review a debtor`s conclusion and financial situation and highlight liquidity or solvency issues as soon as possible. Supply issues, frustrated contracts, or other failures can negatively impact a Cayman Island manager as the effects of COVID-19 move the company`s structure forward. Many facility agreements with large banks and lenders include disclosure and accounting requirements, including, but not limited to: (i) the provision of audited or unaudited accounts; (ii) information on the financial situation and business of a debtor under the Facility Agreement (as reasonably requested by the lender); (iii) maintenance of a specified net asset; and/or (iv) the maintenance of certain financial covenants that may include a certain loan agreement. There is a symbiotic relationship between Cayman Islands holding companies and their subsidiaries. In most cases, holding companies will not be part of the day-to-day business, but will depend on the success of their subsidiaries to generate and preserve their revenues. This income is then used for ease of service contracts and the provision of working capital to their subsidiaries. Notwithstanding the above-mentioned agreements and the EODs, the general insurance, guarantee and agreement contained in the investment and security agreements are that the debtors do everything necessary to ensure compliance with all applicable laws, including all applicable authorities, instructions, rules and regulations.
In the current climate, governments are passing laws that limit business activities, operating hours, and periods of isolation and quarantine for the foreseeable future. These legislative amendments could be in direct contradiction with the obligations arising from a facility agreement. This conflict reinforces our view that all parties to a facility agreement should open negotiations as quickly as reasonably viable in order to assess potential default and compliance difficulties. We are all aware of the global personal, financial and economic repercussions of COVID-19. If this is not already the case, the consequences of COVID-19 will focus on financial and security agreements, the parties should think about how they might be affected and think about how to mitigate their effects. Most experts agree that a global recession is inevitable and can have a circular effect on finances: if companies cannot afford to repay their loans, banks will not lend; If banks do not lend, many companies will not have working capital to finance their activities, which will lead to their loss. Debtors whose ability to comply with the provisions of the Facility Agreement and other financial documents due to the impact of COVID-19 may consider the following: what constitutes a default event (EOD) varies from contract to contract, but includes current OPDs (i) non-payment; (ii) breach of insurance, guarantees or financial obligations (as set out above); (iii) cross-default of other essential contracts of a debtor or group enterprise (often broad enough to include all other financial debts due and payable as a result of default, regardless of the lending enterprise); (iv) insolvency and insolvency proceedings; (v) cessation of activity; and (vi) significant adverse changes (explained below). . .