Banking / Insurance
Current Legal Issues Arising from Banking and Financing Arrangements
In August 2020, Diagoe Plc’s Nigerian entity announced that it was struggling to refinance a $23 million debt and trim costs following a shortage of dollars in the local-foreign exchange market. While the lack of access to greenback (dollar) remains a growing concern for borrowers in Africa, the downturn in the revenue and profits as a result of COVID-19 has recently become a more prevalent cause for the inability of many borrowers to fulfill their contractual obligations.
The disruption of supply chains, compulsory quarantine, and social distancing regulations are a few examples of the effect of COVID-19 which in turn have materially caused economic instability and affected the ability of borrowers to meet their financial obligations. There is therefore a need for lenders and borrowers to critically consider the implications of the current economy on their financial obligations.
This article highlights some key implications the current financial terrain may have on borrowers’ businesses and their ability to comply with their contractual obligations. The article further sets out recommendations for lenders and borrowers who are faced with the task of funding and repaying loans under respective financing arrangements. While there are numerous impacts of the resultant effect of COVID-19 on covenants in finance documents, this article highlights only a few of such key legal consequences on financial obligations.
Financial Conditions and their Implication on Covenants in Finance Documents
Generally, financial covenants in a loan agreement are undertakings given by the borrower to test the performance of the business servicing the loan and to help the lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity. These performance covenants may cover the borrower’s business both back or forward to assess whether the business is showing any signs of distress that could potentially affect its financial obligations under the finance documents.
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However, as a result of the steps taken to combat the COVID-19 pandemic, many businesses have seen a severe and abrupt drop in income which has affected the ability of businesses to meet some performance covenants.Where these covenants have been breached as a result of the pandemic, the lenders may declare a default under loan documents and demand early payments of loan which acts as a drawstop, such that the borrowers will not have access to their facilities. A drawstop event means a breach by the borrower of a financial covenant which gives the lender the right to refuse to make further loan advances under a facility agreement.
In light of the foregoing difficulties that both lenders and borrowers may face in these uncertain times, the following paragraph sets out practical solutions that may be explored by the parties.
Legal Considerations for Borrowers and Lenders
With the current unpredictability of the financial markets, it is important that borrowers and lenders conduct a critical review of their current loan documents to verify the implications of COVID-19 on their rights and obligations. Most importantly, borrowers have to fully disclose to their lenders the current situation of their businesses, highlighting any potential breach before it happens helps to build trust and to enable the lenders to have a clear picture when deciding if they will be willing to adjust financial obligations in line with the current realities of the economy and take into consideration some practical solutions set out below.
First, parties may agree to re-negotiate and subsequently amend their financial covenants, taking into consideration the impact of COVID-19 on the borrower’s ability to comply with their financial covenants. For instance, certain definitions in the finance documents may no longer reflect the current realities of the borrower’s business, such as EBITDA which is used as a metric for thelast four fiscal quarter periods of earnings before interest, taxes, depreciation, and amortization to measure the company’s financial performance.
Thus, where the EBITDA has been affected as a result of the pandemic an amendment to its substance will be an appropriate step in order to reflect the current financial condition of the borrower. Other re-negotiation may be in relation to compliance with certain conditions provided under the finance documents.For example, a facility agreement may include provisions requiring the borrower to fulfil certain further conditions precedent before it can access additional funding under the relevant facility.
It usually includes confirmation that:
(i) no Event of Default or a potential Event of Default has occurred and is continuing; and
(ii) the repeating representations are true in all material
respects, in each case, as at the date of the utilisation request and the proposed utilisation date.
In such instances, parties may either amend the provisions or the borrower may request that the lender grant waivers in the event that such conditions will not be fulfilled.
Another consideration that the borrower may explore (subject to the fulfillment of any available conditions or if waivers are granted by the lender) is utilizing any undrawn commitment under its existing facilities. Although, it has been highlighted above that material breaches of covenants may give right to the lender torefuse to provide additional funding, it may be in the interest of lenders to provide same. This is because additional funding may positively impact the borrower’s business and in turn improve the lender’s chances of full debt recovery.
Finally, parties may consider undertaking a full restructuring of the financing by re-negotiating substantial terms and entering into restructured facility documentation which may capture relaxation of financial covenants, obtaining a moratorium on interest payment obligations, all necessary requirements, amendments, waivers, and consents required by the borrower. Essentially, the restructured facility documentation is drafted on much better terms that reflect the current financial conditions and commercial needs of the borrower.
Conclusion
The global COVID-19 pandemic has no doubt placed a strain on the ability of some businesses to service their debts under finance documents. While many governments especially in developed countries have granted some aids, this may not be enough especially for companies in certain industries that have been seriously hit by the pandemic. The situation is even worse in undeveloped markets where there is little or no support from government. Thus, it is unavoidable that re-negotiation and restructuring are considerations that will likely be put forward by borrowers to avoid triggering defaults under their finance document during these unprecedented times.
It is advisable that lenders on the other hand, are more flexible with their approach with their borrowers and are willing to work around re-negotiating the financial covenants with the borrowers given the current uncertainties arising in the economy.
Written By: Bukola Adelusi recently completed her LL.M in corporate law at Western University, Ontario. Prior to her LL.M, she practiced with a top-tier law firm in Nigeria, where she specialized in banking and finance, M & A and private equity.
Banking / Insurance
Curacel unveils Grow, enabling any technology company to seamlessly offer insurance
Curacel team (Image: Supplied)
Curacel, the leading African insurance infrastructure startup, has launched Curacel Grow. An embedded insurance product that empowers technology companies to seamlessly offer insurance as part of their existing products and services. The startup is also part of the Winter 2022 cohort of Silicon Valley’s prestigious Y Combinator accelerator, joining the growing list of successful African startups that have participated in and benefitted from the program.
Curacel is launching Grow to support more effective distribution of insurance to millions of Africans through partners like Barter by Flutterwave, Float, Payhippo and other leading technology companies. The startup will also enable seamless embedding of insurance in customer user journeys. With Curacel Grow, airlines will be able to offer travel insurance to their customers through simple APIs. Automotive dealers will also be able to seamlessly sell insurance to customers as a value-added service. Curacel has built its market leading infrastructure that powers claims and fraud protection for forward thinking insurers like AXA Mansard and Old Mutual. And this expansive network of underwriters enables the distribution of insurance at scale.
Insurance penetration in Africa currently stands at less than 3 percent, with most policies sold offline and manually via brokers and agents. This cumbersome process makes insurance products expensive and out of reach for many price-sensitive Africans. As a result, market penetration of insurance products in Africa is half of the global average and premiums per capita are 11 times lower than the global average. The insurance industry in Africa also represents less than one percent of insured catastrophe losses worldwide. Although it’s home to almost 17 percent of the global population. This suggests that there is significant scope for growth.
With Grow, insurers can accelerate the distribution of their products by taking advantage of Curacel’s technology to easily embed insurance within other digital experiences in a more accessible way. Technology companies can also increase their recurring revenue by offering the protection their consumers need without the hassle of finding integration and negotiating terms with insurers and brokers. The solution is designed to integrate seamlessly with any technology platform and Curacel’s AI-powered infrastructure means claims can be submitted and processed in real time.
Commenting on the new product, Henry Mascot, CEO and co-founder of Curacel, said, “risk protection is a major consideration for Africa’s growing middle class. As it becomes easier to access credit and other financial services to enable new experiences. We want to make it easier to protect these experiences and enjoy them with full confidence. The success of various technology companies over the years has opened the door to many previously underserved people. And we want to take advantage of this to accelerate the penetration of much needed insurance products across the continent.”
Curacel has a presence in 8 countries across Africa, enabling insurers to connect with digital distribution channels and administer their claims cost-effectively.
There has been a ‘material increase’ in awareness of financial service products like microinsurance during 2021, with growing numbers of Ghanaian consumers purchasing cover to protect themselves and their families in the event of hospitalisation or loss of life.
Francis Gota, the CEO of microinsurer aYo Intermediaries Ghana Limited, says the company has seen a strong increase in its customer base since the start of the pandemic, with more than 6 million customers on its books at the beginning of November. It expects to add another 1.8 million customers in 2022. The company offers Hospitalisation and Life Insurance Cover through its two insurance products, ‘Send with Care’ and ‘Recharge with Care’.
In 2020, the company paid claims of about GH¢2.4 million to more than 8,000 customers.
“Microinsurance is dispelling the myth that insurance is just for the wealthy, educated, and formal-sector employees. Today, every Ghanaian consumer can purchase insurance on the go, using their mobile phones. Phone penetration and technological advancements are making it much easier to reach clients and provide better, more cost-effective service,” said Mr Gota.
Microinsurance is seen as a powerful enabler of financial inclusion in African markets, providing a much-needed social safety net that helps vulnerable people and particularly people with low incomes to stay afloat when the unexpected happens.
“Covid has made many people aware that tomorrow is not promised. As a result, many consumers have a better appreciation for insurance now, and this given us an opportunity to help protect more people than ever before, by providing cover against unexpected life events,” said Mr Gota.
Over 6 million subscribers are currently using aYo’s Recharge with Care product, which offers life and hospital insurance cover every time customers recharge their MTN airtime. Customers can get up to GH¢120 for each night they are admitted to hospital, and up to GH¢6,000 life cover for themselves and one family member who is registered on the policy.
How to sign up
For Recharge with Care, subscribers sign up via app.ayo4u.com or by dialling *296#, selecting option 1 and following the prompts. They can sign up for MyLife, MyHospital, or both. A maximum premium of GH¢6.00 provides cover that is valid for 30 days. Subscribers use the same process for filing claims (*296#, option 1, option 7, and follow the prompts.) Valid claims are paid directly to the claimant’s mobile money wallet.
MTN MoMo subscribers can send MoMo through aYo Send with Care by dialling *170#, select option 1 (transfer money) and then option 3 (Send with Care) on the mobile money menu. This will give them up to GH¢30,000.00 hospital and life insurance cover for themselves, and up to GH¢3,000.00 life cover for their family members (the receivers of the MoMo).
Panel Guests: From the left: Laurent Koffi Senior Manager Segments Mobile Financial Service of MTN Cote d’lvoire; Jean-Charles N’Gotta CEO of aYo Cote d’lvoire; Marius Botha Group CEO of aYo Holdings; Philippe Attobra CEO of Sanlam Assurance Vie (Image: Karli Stock)
aYo Holdings, African microinsurance fintech together with telecommunications giant MTN and Sanlam Life has launched two innovative insurance products in Côte d’Ivoire that will contribute towards MTN subscribers enjoying peace of mind.
CEO of aYo Intermediaries Cote d’Ivoire Limited, Jean-Charles N’Gotta, said: “It is estimated that less than 2% of the Ivorian population currently has insurance. This is because most people think insurance is only for white collar workers with high incomes. We want to show that with aYo services, people with all levels of income can get peace of mind at an affordable cost to help take care of their financial health even after hospital bills due to an accident or illness, or their funeral expenses if the unforeseen happens and they pass away.”
Two basic products will be available at launch once consumers sign up to aYo:
aYo Recharge+ rewards MTN MoMo (Mobile Money) users by offering free accidental hospitalisation cover and life cover each time customers purchase airtime via MoMo. Customers can also take advantage of the AutoBoost, paid-for, functionality to get even more cover with every MTN airtime recharge.
With the free component of aYo Recharge+, each time a customer uses their MoMo wallet to recharge airtime, they get 8 times that amount as accident cover and 12 times that amount as life cover. When they take advantage of AutoBoost to buy additional cover (from 25 CFA to 300 CFA), this amount is multiplied by 200 for additional accident hospitalisation cover and by 300 for additional life cover.
aYo Kash+ offers cover for illness and accidental hospitalisations as well as life cover each time a consumer sends money, pays utility bills or school fees via MTN MoMo. Each time a customer makes a person-to-person money transfer or pays a bill using MTN MoMo, they get illness cover equal to the amount they spend in that transaction, accident and life covers for three times the amount transacted by paying a 5% premium. When they pay school fees using MTN MoMo, they get life cover for twice the amount transacted by paying a 2% premium.
Getting cover and claiming is as easy as using the aYo progressive web app from your mobile phone by visiting www.ayo.co.ci. Signing up, interacting, and claiming all happens without the need for any physical paperwork. When claiming, the required documents can be attached and sent via WhatsApp too.
aYo launched in January 2017 in Uganda and has reached more than 14 million customers across Uganda, Ghana and Zambia. The company has paid in excess of over $1 million in claims.
“Insurance, and the peace of mind it provides, has become more important than ever in today’s fast-paced world, where risks are a part of our daily lives. You never know when you will have to pay to get back on your feet after an accident or an illness. Often, the cost is so large that it goes beyond your immediate financial capacity, and that is where aYo and our innovative products will be most helpful,” said Jean-Charles N’Gotta.
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