A Bird's Eye View on Corporate Borrowers and the Impact of COVID-19 on Loan Facilities

Abstract

The loan market is one of the most hit by the coronavirus (“COVID-19”) pandemic. However, the impact is even more severe on corporate borrowers whose projected earnings are no longer commensurate with their debt servicing obligations as a result of the decline in revenue. It is already predicted that if drastic steps are not taken at the macroeconomic level to cushion the economic impact of the pandemic, a global recession is almost inevitable. At the microeconomic level, corporate borrowers are exploring various traditional methods to address the hardship occasioned on them by the pandemic. It is expected that the loan market will see an unprecedented increase in debt restructuring, re-financing and in extreme cases, insolvency, and litigation. At the forefronts of the discussion is the question as to whether borrowers can rely on force majeure, invoke the doctrine of frustration, or rely on any other provisions in their loan agreements to avoid their contractual obligations as a result of the pandemic. Against this backdrop, this article seeks to highlight and evaluate the impact of COVID-19 on loan facilities and whether it is possible for corporate borrowers to rely on force majeure or claim contractual frustration. In Nigeria, we will also look at the expected market movements in terms of regulatory forbearance and intervention from both the government and lenders.