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COVID-19: Finance Update: Best Practice Finance / LMA Financing

04/06/2020 - Reading time: 6 minutes


Florian Kranebitter


In the context of the current COVID 19 pandemic, the Loan Market Association (LMA) has published initial briefings that highlight the obvious needs for action in connection with ongoing LMA / LMA “a-like” based financings. The issues addressed are of general interest for both, lenders and borrowers, irrespective of the financing format.

The Loan Market Association (LMA) has published first briefings, two briefings (leveraged finance and investment grade lending) dealing with the immediate and obvious challenges and issues arising from the COVID 19 pandemic from (ongoing) financings, and one briefing with the practical limitations of physical-distancing associated with the COVID 19 pandemic.

In the context of the investment grade lending, the LMA identifies categories of key factors and key considerations that can also be generalized for (other) financing purposes:

(i) maintaining liquidity;

(ii) monitoring of the borrower’s performance; and

(iii) the need for additional flexibility.

In all these three categories, there are common and divergent interests of lenders and borrowers, and within the specific categories, the following areas of regulation typical for credit agreements will require particular action:

Liquidity maintenancePerformanceFlexibility
new credit lines and expansion and extensions of existing credit linesreportings obligationsrepresentations
(maximum) utilisation / utilisation of existing credit linesextended use of information rightscovenants
service of draw-down-lettersimplications for valuation / pricingmaterial adverse change (MAC
definition of banking days and any restrictions on the actual availability of banking systems due to COVID-19 other events of default (EODs)
  information-obligations in respect to (possible) events of default
  amendments & waivers

Form and physical-distancing

As mentioned in the introduction, the LMA also deals in one of its briefings with the practical side of the current physical-distancing. The question focuses on the extent to which and in what form signatures can be effectively provided in different jurisdictions by exchanging signature pages via e-mail, signature templates in JPEG or comparable formats or via e-signing platforms. The question of the effectiveness of signatures and related declarations is of interest not only for the conclusion of credit agreements, but also for adjustments and for waivers that are currently particularly relevant. From a practical point of view, the LMA discusses the following three forms:

(i) Exchange of signed pdf-documents: The document is sent by e-mail, printed and signed by the recipient and then returned to the sender as a pdf file.

(ii) Insertion of stored signatures: An electronic image of the signatory’s signature is stored, for example, in jpeg, tif or pdf formats and, if required, is inserted on the signature page of a document in electronic form.

(iii) Platforms for electronic signatures: In this form, the parties’ representatives use the (cloud) service of a third party (platform operator). The authorization of the signatories can be verified in different ways. For example, the platform operator can send an e-mail to the signatory’s address, requesting the signatory to sign – for example, by clicking on a link which results in a confirmation. After all signatories have signed in this form, the third party creates a document in electronic form which bears the computer-generated signatures of all signatories. The signed document receives a digital seal to protect it from subsequent alteration.

The LMA has published on its website legal assessments of the admissibility and effectiveness of such signature variations for numerous jurisdictions, including for example Germany. For Germany, it is generally held that all three forms of signature are valid, although it is pointed out that for certain transactions, a handwritten signature is required, sometimes also with the assistance of a notary public. The latter requirement applies in particular in connection with collateral transactions such as pledging (this differs from the legal situation in Austria) or transfer of shares in a limited liability company or real estate. Therefore, declarations in this regard cannot be made using one of these three forms of signatures. Declarations for which the law or the contract provides (only) for handwritten signatures can, however, be effectively made by means of an electronic signature, provided that it is a qualified electronic signature in accordance with the EU 910/2014 Regulation (eIDAS Regulation).

From an Austrian legal point of view, it can be assumed that wherever the validity of a declaration is legally required to be in writing, a handwritten signature is mandatory. There are also stricter formal requirements and exceptions to the strict requirement of a handwritten signature. For example, the Austrian Supreme Court has confirmed in connection with the written form requirement for sureties that the transmission of a signed guarantee declaration by fax satisfies the formal signature requirement. Although there is no established case law on this, the literature takes on this basis the view that the exchange of signature pages via e-mail also satisfies the written form requirement.

Whether a signature by inserting stored signatures is effective must be examined in each individual case and its effectiveness must be measured against the purpose of the formal requirement so that no general statement can be made in this respect.

The qualified electronic signature, on the other hand, meets the legal requirement of a handwritten signature and can therefore be used in all instances where Austrian law provides for (handwritten or signed) written form or where it is contractually agreed. However, certain exceptions to this principle are provided for in Section 4 para 2of the Federal Act on Electronic Signatures (Signaturgesetz – SigG). When transferring shares in a limited liability company or pledging real estate, the electronic signature does not have the legal effect of written form. It is possible, however, to use an electronic signature to sign a declaration of surety in a commercial, professional or business context.

Consequently, from a practical point of view, and in particular due to the large number of parties and jurisdictions typically involved in financing transactions, a clear contractual agreement is advisable, which – unless mandatory formal requirements apply – form are recognized by the party as satisfactory. If existing financing agreements do not contain specific provisions in this regard (most (standard LMA) financing agreements do not), it is recommended in the individual cases (e.g. in connection with the issuance of a waiver) to make a corresponding disclosure and agreement (e.g. by means of express confirmation that the other parties (also) agree with the alternative form chosen). This also applies to the order to one of the parties or their representatives to compile individually collected signature pages (in physical or electronic form) with each other and with the respective body of the contract and thus to “produce” the relevant “signed” contract document with effect for all parties. Considerations which were also in use before COVID-19, but which are now of more considerable practical importance.


Florian Kranebitter