Considerations for Successfully Navigating COVID-19

Mitigate Supply Chain Disruptions

• Identify and mitigate any potential supply chain disruption caused by factory closures, travel restrictions or employee shortages due to illness or quarantine.

• Consider short-term changes to supply chain model to avoid disruption (e.g., replacement suppliers or vendors, other production alternatives).

• Evaluate and consider impact on vendors’ ability to deliver and customers’ ability to pay on time.

• Identify and mitigate potential contractual issues arising from delays in production or failure to fulfill outstanding orders (e.g., events of default, notice requirements, applicability of force majeure provisions) and any related consequences of a breach.

• Review material contracts for any cross-default issues.

• Implement alternative communication procedures with buyers and suppliers while any travel restrictions remain in effect.

Consider Potential Financial Obstacles

• Regularly review actual cash flow status and accurately forecast cash on a regular and rolling basis (e.g., daily) to mitigate potential deficiencies due to supply chain disruption, decreased sales, and extended travel restrictions. For companies with credit facilities, they should assume that their lenders will be requesting 13-week cash flow forecasts and begin prepare these preliminary draft forecasts.

• Consider implications of missed targets on ability to achieve overall projections outlined in current business plan and update business plan accordingly.

• Assess implications for the potential delay of business expansion or consolidation and ability to obtain subsequent rounds of financing.

• Consider impact on working capital of disruption to supply chain and replacement of existing company vendors.

• Consider cost of significant workforce disruption and its impact on continued operation of business.

• Consider cost of implementing programs to protect employee health.

• Carefully review insurance policies to assess potential recoveries for any business disruption and clarify need for additional coverage as situation develops.

Near-Term Debt Financing Issues to Address

• Critically review existing debt service obligations to identify ability to make principal and interest payments likely due at the end of March and assess probable consequences of seeking deferrals.

• Critically review potential covenant defaults resulting from operational disruption. Review potential options for increasing EBITDA for losses and expenses in connection with COVID-19.

• Review current access to revolving lines of credit and delayed-draw term loans and consider drawing down prior to next reporting period (while being mindful of impact on any applicable financial covenants). Review cash management structure to determine ability to keep cash in deposit accounts that are not part of a lender’s security package.

• Consider whether COVID-19 will impact ability to bring down representations and warranties (including those related to solvency and no material adverse effect).

• For asset-based loans (ABLs), carefully review excess availability or liquidity triggers for avoiding springing financial covenants, cash dominion, increased reporting and inspection rights caused by increased draws.

Long-Term Debt Financing Issues to Address

• Consider whether there are any upcoming debt maturities in the near future (e.g., next nine to 12 months) and assess ability to address them.

• Consider impact of decreasing loan bids and falling bond prices in the secondary loan market on traded debt and ability to retire debt under par.

• Engage with lenders and other company stakeholders to encourage proactive discussions regarding potential rescheduling of debt or obtaining alternative financing sources.