Important Considerations for Corporate Treasury Departments and Plan Administrators

Many companies have been and will continue to be affected by the crisis in the financial markets. The effects of the crisis will extend far beyond the financial sector. Much of the commentary to date has been focused on financial institutions. Set forth below are considerations for market participants in all sectors of the economy in light of such turmoil.

Investment Matters

• Does the company have deposits at one financial institution exceeding $100,000, including any escrow deposits? Is it a strong institution? Beware: Deposits of divisions or units that are not incorporated separately are aggregated with the deposits of the corporation.
• Does the company have any money market fund investments? If so, will the fund elect to participate in the new government insurance program?
• Have retirement plan investment advisors reviewed whether any modifications to the menu of permitted investments are advisable in light of the deterioration of certain assets?
• Does the company invest in repurchase agreements? If so, does it have a perfected security interest in the securities?
• Does the company participate in a securities lending program? Has it been affected by recent events?

Credit Arrangements

• When does the company’s credit agreement expire? Given the liquidity problems, refinancing may take considerably longer and cost significantly more than it did previously.
• Are there any financially troubled lenders in the credit facility? Will those lenders be able to honor their funding commitments? What steps will the company take to mitigate this potential problem? Has drawing on revolving commitments and/or exercising any increase options been considered?
• Is the company anticipating any covenant issues under the credit agreement? If so, amendments are taking longer to accomplish and may be expensive.
• Does the credit agreement have a limitation on investments covenant? If so, do any of the company’s investments fail any ratings requirement?
• If company debt is trading at less than par, has the company considered repurchasing such debt in order to retire it?
• Has the company considered the impact of financial institution consolidation under its credit agreements (for instance, the impact on lender voting groups)?
• Has the company considered the impact of fair value accounting on compliance with financial covenants?
• Has the company received a commitment letter? If so, does it have a market material adverse change (MAC) clause? How does that impact a firm commitment (underwritten deal)?

General Concerns

• Has the company entered into a derivative transaction with a counterparty that is insolvent, has merged or transferred all or substantially all of its assets, or defaulted on indebtedness in respect of borrowed money? The company may have the right to terminate the trade.
• Does the company have any letters of credit issued by financially troubled institutions (either as a beneficiary of the letter of credit or the account party on such letter of credit)? If so, how will it mitigate the risk of default?
• Has the company sold receivables or other financial assets to a financially troubled institution? If such sale was done with some level of recourse, does the company have a “true sale” opinion?

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or any of the following individuals:

Patricia J. Lane
Milwaukee, Wisconsin
414.297.5635
[email protected]

Emory Ireland
Milwaukee, Wisconsin
414.297.5624
[email protected]