1. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?
If your business has been temporarily closed, there is likely to be a delay between the incurrence of costs to restart your business and the consequent receipt of income. Businesses should consider whether they have sufficient working capital during the interim period. In particular, if you have any remaining availability under any revolving credit facility, note that there will likely be a draw stop on new funding if a default (or occasionally event of default) is continuing.
In terms of assistance packages, the Thai government has allocated nearly THB1.9 trillion (USD62 billion) in economic stimuli to ease the pain of the economic slowdown and kickstart the Thai economic recovery. A significant portion has been allocated to soft loans by the government and the Bank of Thailand to commercial banks to facilitate low interest rate loans for consumers and corporates at a 2-3% rate.
2. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?
Businesses should consider how a fall in revenue due to the COVID-19 outbreak may have affected their ability to comply with any financial covenants in their finance documentation. Depending on businesses’ credit history with their lenders, lenders may be receptive to a covenant waiver for the March to May testing dates.
Moving forward, businesses should also consider whether a wavier, or indeed full covenant reset, will be needed for future test dates (and then also consider when would be an appropriate time to try to determine what those re-set covenants should be). Particular considerations include:
- the decrease in revenue/EBITDA over the period where the business was disrupted:
- any likely tapered increase in revenue/ EBITDA as business operations resume;
- costs for restarting the business; and
- payment of any deferred payments (e.g. rental payments, utility charges).
3. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?
Equity cure and margin ratchet provisions are not common in term loan or revolving credit facility documentation. In the case of the former, debtors may rely on an equity injection to maintain financial covenants. For the latter, debtors should note the exact trigger conditions for margin increase.
4. What practicalities do you need to consider in relation to audit requirements?
Businesses should take into account whether social-distancing/work-from-home measures will hamper the audit process, and engage with lenders on the expected timetable for when the audited financial statements can be published.
In this regard, the Securities and Exchange Commission of Thailand (Thai SEC) has allowed listed companies to delay the publication of certain audited financial statements (which were due by 31 May 2020), provided the companies submitted a request to the Thai SEC informing the necessity and disclose such difficulty on the public platform of the Stock Exchange of Thailand.
5. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?
Debtors should engage with their lenders to explore whether they are amenable to waive or amend the terms of existing finance documentation. The documentation will set out the different lender consent thresholds required. For example, disposal of assets by the borrower may only require majority lender approval, but waiving an event of default would usually require unanimous lender consent. If the requisite consent is obtained, the changes can be documented through an amendment and restatement agreement, or even a temporary‘ override if the amendments are temporary.
6. Dealing with creditors, including amendments and waivers – Bonds
a. If I can’t comply with the terms of my bond covenants who do I need to notify?
If a default has occurred or is likely to occur, communication with the beneficial owners of the economics of the bonds will often be required through a combination of public announcements filed on the exchange where the bonds are listed and the issuer’s website, with simultaneous notice to the trustee or fiscal agent (as determined by the governing document of the bonds).
b. If I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?
Governing documents for bonds will usually have a detailed waiver and amendment procedure, and the relevant thresholds for holder consent will be contained in the trust deed or the indenture of the bonds. Holders are people recorded in the register of bonds who maintain securities accounts with the clearing systems.
Consent from holders (representing a majority of the principal amount outstanding) will be required for amendments to non-economic terms (such as ability to incur additional debt), but economic terms (e.g. maturity, interest rate, interest payment dates currency) will generally require 75% consent for Thai law-governed bonds.
The first step for the Issuer should be to organise a professional team (including the appointment of an information agent) to review the documentation. A decision needs to be made whether a consent solicitation will be sufficient or something more involved is necessary (e.g. resolution from bondholders’ meeting).
The objective is to quickly commence a commercial dialogue between the issuer and the beneficial owners of the economics of the bonds as principal.
c. What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?
Commonly, the terms and conditions of the bonds allow the issuer or the bondholders holding a certain amount of the principal amount outstanding to ask the issuer or the bond’s representative to call a meeting.
Where a bond representative for the particular bond series has been appointed, the bond’s representative will generally be obligated under the terms and conditions of the bonds to call a meeting if there is an occurrence of material events specified thereunder (e.g. event of defaults, material adverse effect).