IMPACT ON LIQUIDITY RISK

The steps placed in place by public policy to curb the spread of COVID-19 have contributed
to major operational disruption for many businesses. Quarantined workers, the collapse of
the supply chain, orphaned/inaccessible inventories, and abrupt consumer demand declines
are causing serious problems for businesses across a much broader spectrum of industries
than originally expected.
A number of businesses face weeks, if not months, of unusually poor operating conditions
these days. For many, the revenue lost in this time is a permanent loss rather than a
difference in timing and places immediate, unanticipated strain on lines of working capital
and liquidity.
By allowing unseasonal drawdown on their RCF, some businesses are able to retain
sufficient headroom. Others find that to arrange temporarily larger facilities or covenant
resets/waivers, they need to contact their banks. The size and urgency of the financing
requirement has taken the management team of the company and its bankers aback in
some cases.

Reasons why companies may have issues

 The credit approval timescales of banks may be too slow to produce the necessary
funding on time;
 Banks may be at the limit of their risk tolerance with respect to a single loan;
 Companies may pursue a highly tailor-made, rolling short-term facility on terms that
do not necessarily fit into the standard product suite of a bank.