RE:Covenants 101............ (D.Y.O.D.D.) REDUCED LENDING
Banks could lower lending amounts as they recalculate energy companies' borrowing bases through to May, the total collateral against which they can lend.
Royal Bank of Canada analysts said in a Wednesday note they wouldn't be surprised to see between 20-40% drop in borrowing bases on average, though it could be more case specific.
Those reviews are playing out as Ottawa considers ways to backstop banks to keep them lending to energy companies, Reuters reported.
For banks, standing by their clients, who are also a source of non-lending revenues, i s the best strategy for now.
CIBC is providing new credit lines, helping companies restructure where needed and "is ensuring they have the financial strength to deal with this very unique challenge," CEO Victor Dodig told Reuters.
U.S crude has slumped almost 70% since January to less than $20 a barrel despite an agreement over the weekend between Saudi Arabia and Russia to slash production. Although highly variable, the majority of the Canadian industry needs oil prices above $40 to maintain volumes and cover costs, according to RBC.