While the COVID-19 pandemic is an unprecedented global crisis,
the resurgence of the mentality that 'Cash is King' is all
too familiar. In both the 2008 financial crisis and the downturn in
the oil and gas industry beginning in 2014, borrowers sought to
increase their liquidity by drawing on their existing credit
facilities in an effort to stockpile cash to weather the economic
slowdown. Amidst the COVID-19 pandemic, we are once again hearing
about borrowers and sponsors who are fearful of a lack of liquidity
and are considering drawing down the entire remaining balance of
their facilities to address this fear.
This scenario, which is taking place around the world, presents
a unique challenge for lenders in managing their own capital and
leads to the question of what measures can be taken by lenders to
prevent borrowers from drawing down their entire facilities and
hoarding their cash. There are a few notable protections that may
be available to lenders: (i) amend
