Anti-Hoarding & Credit Facilities

Anti-Hoarding & Credit Facilities


The COVID-19 pandemic continues to cause major economic disruption; resulting in a sharp downturn in financial markets and increased uncertainty. In this challenging economic environment, unless prohibited, borrowers may be incentivized to obtain extra loan advances and hold cash that may otherwise have been utilized for repayments, acquisitions or distributions. Some borrowers may seek to draw down on their existing credit facilities in order to improve their cash positions, including borrowers with borrowing based credit facilities facing the prospect of reduced availability due to:

  • decreasing inventory values and falling (or non-existent) accounts receivables; or
  • creditors lowering the advance rates on the basis of changed market circumstances.

In anticipation of such reduced borrowing availability, borrowers sometimes engage in defensive draw downs to improve their liquidity, finance ongoing operations and provide additional leverage with creditors in the face of dwindling reserves and possible bankruptcy and insolvency proceedings. This raises credit and reputational risk for creditors as they consider whether or not to honour requests for advances. Many creditors are reviewing their existing anti-hoarding provisions, if contained in their credit documents, and considering amending their credit documents to include anti-hoarding provisions.

Anti-Hoarding Provisions

Anti-hoarding provisions restrict the borrower’s ability to request an advance if it would result in the borrower having “excess cash” on hand, which may include an express ability for the creditor to refuse to make the loan advance. Some anti-hoarding provisions, especially for distressed debtors or those in high-risk industries, also include mandatory prepayment of the outstanding amounts under credit facilities by all or a portion of the excess cash. The definition of “excess cash” is typically negotiated between the parties and will generally capture all cash and cash equivalents of a borrower, subject to certain exclusions that will not be included in the calculation of “excess cash,” such as:

  • a certain level of aggregate cash on deposit
  • debt redemption payments and escrow funds in connection with permitted financings
  • severance payments and applicable taxes, wages and benefit payments
  • royalty obligations to unaffiliated third parties
  • amounts required in compliance with applicable law
Key Lender Concerns Key Borrower Concerns
  • Reputational, litigation and credit risk
  • Ability to refuse to advance requested loans
  • Ability to adjust borrowing base

  • Liquidity risk & certainty of advance
  • Conditions precedent to each draw (e.g., No Default)
  • Compliance with borrowing base calculations and availability

When drafting and negotiating anti-hoarding provisions, clarity is important so that the provisions leave little room for creative interpretation or discretion. It is important to consult with legal counsel early as you consider amendments to or new anti-hoarding provisions.

Additional resources related to the impact of the COVID-19 pandemic can be found here.

This publication is a general summary of the law. It does not replace legal advice tailored to your specific circumstances.

For more information, contact the authors of this article or any member of our Banking & Specialty Finance Group.

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