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24 March 2020

COVID-19: Managing Financial Covenants in a Downturn

Given that financial covenants are measured on a rolling LTM (last twelve months) basis, there is a time lag from a negative earnings development until an actual breach. For some of the industries affected, the COVID-19 earnings decline came overnight and with unprecedented force leading to potential defaults starting in Q3. Leveraged borrowers and their owners, including private equity sponsors, should prepare covenant management now. Options include waivers, new base case, covenant reset and cure. It is not all bad. We expect Danish bank lenders to be relatively flexible. One of the reasons is the interpretation issued by the Danish FSA on 19 March 2020, implying that banks granting temporary relief from covenant breaches are not required to make loan loss provisions. Financial covenants come in two shapes and forms: “Maintenance covenants” implies that a breach is an event of default triggering immediate repayment of the debt. “Incurrence covenants” implies that the borrower is restricted from taking up new debt, if by doing so the borrower would breach a covenant.

Henning Aasmul-Olsen

Partner

+45 30 37 96 50

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Joakim Holdt

Associate

+45 30 37 96 21

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The Latest

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27 July 2022

Maintenance and Alignment Sanctions Package

14 July 2022

New Draft for Template Lease Contract A, 10th Edition

11 July 2022

New EU regulation on Foreign Subsidies to add on a Third regulatory approval Regime for M&A deals

5 July 2022

A new draft bill which, if adopted, will lead to significant changes in the rules on pre-emption rights (in Danish: “tilbudspligten”) under the Danish Lease Act

24 June 2022

Updated ESMA Market Abuse Regulation Guidelines on the delay of Disclosure of Inside Information and Interactions with prudential supervision

10 June 2022

Kristoffer Lund Poulsen and Poul Guo/郭保罗 make partners at Moalem Weitemeyer!

25 May 2022

In Memoriam

4 May 2022

The Danish news media K-news has brought an article about Moalem Weitemeyer's recent 25% salary raise and improved bonus arrangements

29 April 2022

Moalem Weitemeyer has lifted all salaries with 25 % in addition to the firm's market-leading bonus

28 April 2022

New EU Legislation to make the Internet a safer Space for Users