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. Transport services company YRC Worldwide also said that an anti-cash horting alliance was added this month as part of an amendment to its September 2019 credit agreement, following a regulatory declaration of April 8. The provision requires mandatory advances on long-term loans, with cash on the balance sheet exceeding $200 million, as long-term loan pre-financing is met. The anti-hoarding provisions restrict the borrower`s ability to request an advance if it allows the borrower to dispose of a «cash surplus,» which may include an express possibility for the creditor to refuse the credit advance. Some anti-hoarding provisions, particularly for debtors in difficulty or in risk sectors, include the mandatory down payment of the remaining amounts under credit facilities, by all or part of the excess liquidity. The definition of «excess cash» is generally negotiated between the parties and generally covers all means of payment and a borrower`s cash equivalents, subject to certain exclusions that are not included in the calculation of «excess cash» such as. B: Credit contracts may be amended to include anti-hoarding provisions to prevent a borrower from holding cash or cash equivalents greater than a certain dollar. When the borrower reaches this threshold, they may be required to repay or prepay their line of credit for the amount of that excess. Lenders who are concerned about rBL exposure should carefully review their rights under an RBL facility and government legislation to assess damages that may result from non-financing. In addition, lenders may wish to draw the attention of their treasury departments to the fact that new accounts for a borrower should need an account control agreement to prevent the creation of a new account without this limitation.
In the days leading up to the announcement of covid-19 pandemic-related home orders, many Americans purchased unusually large quantities of toilet paper. This trend of universal reserve may not have surprised oil and gas reserve credit veterans, who have probably seen other examples of how the expected shortage highlights the nature of the reserve. If the price of oil rises to a level that makes production unprofitable, many producers using reserve-based credit facilities are encouraged to withdraw as much money as possible from their credit facilities to support their liquidity. As grocery stores introduce quotas per customer to limit the storage of toilet paper and other important things, lenders are turning to a confidence-building strategy to limit the storage of cash by oil and gas borrowers. As the credit facility maturities approach, the risk of the lender storing cash increases, especially if the money was issued before the due date. If there is a «cleandown» clause in the credit agreement and the adjustment date is close, the risk is the same. When entering into an amended credit agreement to facilitate and liquidate contracts, lenders may consider borrowers agreeing to add an anti-cash-horarding provision to the credit contract (or, alternatively, some of the strategies proposed above).