Pending such a reduction in the availability of loans, borrowers sometimes take on defensive reductions to improve liquidity, finance ongoing transactions and provide additional leverage to creditors in the face of reduced reserves and possible bankruptcy and insolvency proceedings. This increases the credit and reputational risk to creditors when they consider complying with advance requests or not. Many creditors review their existing anti-hoarding provisions, provided they appear in their credit documents, and consider amending their credit documents so that they contain anti-hoarding provisions. As companies try to change their credit contracts to demand contract relief or life extensions, lenders insist that so-called anti-hoarding provisions be added to limit a borrower`s ability to fully use their revolving line of credit. Anti-hoarding provisions are the norm in credit contracts for oil and gas companies during volatility, so the clause has gained importance during the current season of redefining the reserve-based bond base. In the face of the pandemic, some borrowers, who pay for short-term liquidity constraints, may try to divert their credit facilities away in a preventive way to reserve cash until they need it later. a. Vote Lender. Reserve-based credit agreements are generally unionized between a group of bank lenders and generally provide that certain types of credit contract changes require 100% of all lenders, while other types of amendments require only a majority or two-thirds of the votes.
Amendments that are minor or benefit lenders generally require a majority vote, while amendments that are essential or that may have a negative impact on a lender`s economic interests generally require a 100% vote. In accordance with this principle, an amendment that adds strict horrifying provisions should require only a majority of votes. A borrower could decide whether it is available under an existing credit facility to be aggressive and call on many, if not all, to make available availability a « cash cushion » based on the fear that its lender will reduce availability in the future. A borrower can do this because he thinks he has potential violations of credit contracts on the horizon that could allow his lender to reject a future draw application. Terex Corp, a manufacturer of materials processing products, said that when amending its 2017 credit agreement this month to extend the duration of its revolver until January 2023 from January 2022, an anti-hoarding cash allowance was added until December 31, after a regulatory notification of April 24. If the credit contract includes an anti-cash-horing provision, this alone could prevent a borrower from opportunistically retracting its operating mechanism. In these circumstances, it is wise for a lender, with the assistance of its lawyer, to re-examine the scope of anti-cash-horing regulations, since not all of these provisions are established in the same way.