April 15, 2020

COVID 19: Considerations for Waiver Processes in Infrastructure Finance






The COVID-19 pandemic has led certain infrastructure businesses to face significant disruptions to operations and revenues, giving rise in many instances to breaches or potential breaches of finance documentation. This article considers at high-level issues to be mindful of when undertaking waiver processes to address such breaches.

Potential Waivers

Financial Covenants

The impetus for many borrowers commencing waiver processes will be that their financial projections show a breach of financial ratios on one or more upcoming calculation dates. Issues to consider in relation to financial covenant waivers include:

  • Holiday or waiver—whether the borrower proposes to continue testing financial covenants but secure a waiver of breaches on certain test dates or instead proposes not to test the financial covenants for certain test dates. The point is generally presentational as in either case, as a condition of providing the waiver or holiday, creditors will generally require enhanced information deliverables during the waiver/holiday period.
  • Duration—borrowers should consider the waiver period to be requested carefully. Given the uncertainty as to the duration and nature of the impact of the COVID-19 pandemic, creditors may not be willing to grant waivers which stretch out too far into an uncertain future. Equally, running a number of repetitive waiver processes for multiple calculation dates is unlikely to be a valuable use of management’s energy during an already challenging time.
  • Lock up and sweep—inevitably, distributions will be prohibited during the financial covenant waiver period; however, consideration should be given as to whether the failure of “Lock Up” levels will give rise to a requirement for “Excess Cashflow” to be credited to a “Lock Up Account” and subsequently applied in prepayment of secured debt. In many cases it may be preferable, from the perspective of both the borrower and creditors, for such cash to be retained in the business and applied for opex, maintenance capex and/or debt service.
  • Annualization—as an alternative to seeking a waiver in relation to financial periods which straddle the impact of the COVID-19 pandemic and a subsequent period of recovery, borrowers may be able to meet financial ratio tests by annualizing revenues from the period of recovery only. This may not be viable for businesses with seasonal cash flows.
  • Audit qualification—a projected financial covenant breach during the 12-month period after the auditors approve the accounts may prevent the auditors from signing off the business as a going concern. In addition to qualification of company accounts by auditors potentially giving rise to events of default under financial indebtedness of the financing group, the qualification may have other consequences that are unhelpful for both creditors and borrowers such as, in some jurisdictions, triggering action by the pensions regulator.
  • Exceptional items and government assistance—consideration should be given as to whether for financial periods subsequent to the waiver period the impact of any ongoing government assistance and exceptional expenditure related to the COVID-19 pandemic are appropriately captured in financial covenant calculations.

Other Relevant Events of Default

Other potential events of default which may be relevant commonly include:

  • Expropriation—in addition to covering expropriation of assets or nationalization, these events of default can cover government intervention in operations which may be relevant in the context of the COVID-19 pandemic.
  • MAC—a “Material Adverse Change” event of default is a feature of a number of deals and consideration should be given as to whether the COVID-19 pandemic constitutes such an event for the business in question and by reference to the specific formulation in the relevant finance documentation.
  • Cessation of business—this event of default is often drafted to capture any suspension of a material part of the Group’s businesses. Creditors will be focused on the duration of the waiver and borrowers should consider whether recommencement of operations may be gradual and the likely timeframe for all material aspects of operations to be resumed.
  • Cross-default—in addition to considering potential cross defaults with other secured creditors, borrowers should consider whether other financial indebtedness of the financing group including treasury transactions, local facilities and finance leases could be relevant.


The approval by creditors of Event of Default waivers will often be subject to certain conditions. Key areas of focus are likely to include:

  • Enhanced reporting—information flow is key during the period in which financial covenants are waived and creditors are likely to require additional financial information and for such information to be provided on a more regular basis.
  • Update calls—regular update calls as to recovery and ongoing strategy will be well received by creditors.
  • Liquidity—creditors will need comfort that businesses have adequate liquidity for the duration of the waiver period (see below).
  • Ratings—where a borrower has been downgraded below investment grade due to the impact of the COVID-19 pandemic a route back to an investment grade status will be an area of focus.
  • Pricing—whilst creditors are being supportive of infrastructure borrowers facing COVID-19 induced challenges and requests for consent fees are rare, where a change in the rating of the borrower gives rise to a discernable capital cost for the creditor, pricing step-ups are being raised by some creditors.


When approaching creditors for a waiver of events of default in the face of revenue disruption, it is inevitable that liquidity will be a key focus. Borrowers will need to demonstrate that they have a sufficient liquidity cushion for the period of disruption. Issues to consider include:

  • Existing liquidity—creditors will be focused on existing cash balances and available credit lines. In some cases it may be possible to repurpose part or all of an existing facility for a limited period of time, e.g. from a capex and acquisition facility to a working capital facility.
  • Reduction in expenditure—operational cost savings will be an area of focus and it may be appropriate to defer expansionary capex programs.
  • Availability of government support—this should be investigated and communicated to creditors. Support may include a combination of tax deferrals, wage support and government-backed liquidity lines.
  • Layering the capital structure—possibility of incurring midco or junior debt—this may be a useful avenue to explore in terms of adding liquidity without placing more pressure on the senior level of the capital structure.

Practical Process Considerations

Potential considerations around timing for applying for waivers include other demands on management time, implementation of government support measures such as furloughing schemes, the readiness of the information package to be provided with the waiver, rollover dates for revolving facility loans and the need to make utilizations. An outstanding MAC Event of Default for example can be an issue in the context of drawing down new funding.

Other process considerations to be mindful of include consent thresholds, shareholder involvement and the nature and timing of engagement with creditors and provision of information. Running an effective consent process is an art and when managed successfully will reduce both time and cost and be more likely to result in the desired outcome for all concerned.

We would be very happy to discuss any of the issues raised in the article in more depth.