New Accounting Standards Can Significantly Impact Credit Agreements

May 1, 2019

By Kim Desmarais


New accounting standards for leases can have unintended consequences on debt covenants and financial ratios in credit agreements. Under the new rules (Accounting Standards Codification Topic (“ASC”) 842 and International Financial Reporting Standard (“IFRS”) 16), nearly all operating leases, in addition to finance leases (formerly, capital leases), are required to be recognized as a liability on the balance sheet of a lessee if the lease term is greater than twelve months.

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About the Author

KimDesmarais (1)
Kim Desmarais represents banks, private debt funds, commercial finance companies and other institutional lenders in a variety of financing transactions, both cross-border and domestic, across a broad range of industries with a particular focus on leveraged finance and asset-based lending transactions, workouts and restructurings. Kim has extensive experience advising on collateral and other secured lending issues and serves as secretary of the NY Bar’s Commercial Law and Uniform State Laws Committee.

Jones Day's Banking, Finance, and Securities Practice represents banks, commercial finance companies, insurance companies, leasing companies, and other institutional lenders in a multitude of ABL transactions.  Its secured lending attorneys are at the forefront of structuring, developing and executing transactions to meet the increasing complexity and value-driven needs of the ABL market.  Jones Day is a global law firm with more than 2,500 lawyers in 43 offices across five continents. The Firm’s lawyers lead ABL deals in many of its foreign, as well as US offices, including cross border deals in Europe, Latin America, Australia, and Asia. 

For more information contact Angie Batterson (abatterson@jonesday.com), Kim Desmarais (kdesmarais@jonesday.com) or Al LaFiandra (alafiandra@jonesday.com).