This story was updated at 5:11 p.m

Revolving lines of credit are a critical capital source for funding payroll, buying raw materials, paying rents, and backstopping commercial paper programs. And that goes double during a crisis that grounds the U.S. economy to a halt.

So, it’s no surprise that companies are tapping existing commercial revolvers, securing new lines of credit, and even adding to existing debt capacity to outlast the COVID-19 crisis.

In its first-quarter earnings release, JP Morgan Chase said corporate clients drew down some $50 billion on their credit lines in the first quarter, contributing to a 6% jump in borrowing. Wells Fargo said commercial clients used over $80 billion of their loan commitments in March alone.

“While we generally view loan growth as a positive for banks, in this instance, it is more indicative of businesses facing challenges and uncertainty,” Kyle Sanders, an analyst at Edward Jones, said in a note to clients. “We attribute most of the loan growth to commercial clients tapping lines of credit in order to build cash reserves to weather the economic downturn.”

While corporations are also scrambling to issue in the investment-grade and junk bond markets, tapping a revolver is standard operating procedure when liquidity dries up.

What is significant is that many companies are drawing down the entirety of their facilities, to ensure they will continue to have access to the funds. (See the list below.) Generally, that’s not how banks like to see revolving lines of credit used.

But that doesn’t mean lenders can just jump in and tighten terms on the borrower.

“Thus far, banks have not made changes to lines that are already approved,” says Mayra Rodriguez Valladares, a banking regulation and capital markets consultant. “If they were to do that, it would be outrageous given that companies need liquidity more than ever to keep people employed.” However, “if this crisis intensifies, banks certainly will raise rates and shorten maturities for new lines before they approve them.”

Marina Vaamonde, founder of PropertyCashin.com, says her company has a $2.5 million line of credit with Capital One that renews annually. “Initially, I was assured by my banker they are not actively calling in the lines of credit,” she says. “However, the rest of our discussion made me understand that there is definitely a heightened risk of the bank turning an existing line of credit into a five-year term loan.”

The bank wants to make sure that the line of credit is being used “correctly,” Vaamonde explains. “They are looking to see that the business hasn’t drawn it down to the max” and is not just paying interest on the loan, “but that the line is being paid down practically to zero on a regular basis.”
Michael Jacobson, chair of the commercial finance practice at Katten Muchin Rosenman, says that in most of the deals he works on the revolver goes unused. When companies started drawing down their revolvers two to three weeks ago, some lenders had concerns about their own liquidity.

“Most clients funded [the loans] with the idea that this is a systemic issue,” not a specific industry concern, Jacobson says, and that they needed to support these companies to avoid a wave of defaults in their portfolios.

As time goes on, there may be some negotiations that go on, he says. Some borrowers will start to repay the loans, because they’re relatively expensive. Borrowers may be able to get cheaper credit through the federal government’s crisis loan programs, Jacobson says.

If the economic deterioration lasts longer than expected, some companies may have to come back to lenders to ask for amendments, like the easing of financial covenants.

On Wednesday, for example, Wynn Resorts had to go back to its lender, Deutsche Bank, to “adjust financial covenant terms and financial reporting obligations,” reported Seeking Alpha. “The adjustments will help the casino giant avoid tripping over prior covenant requirements,” the media outlet reported.

Such moves could open the door for a bank or bank syndicate to ask for quid pro quos, like “cash leakage” provisions that restrict cash distributions to entities outside of the lending group, says Jacobson.

At present, overall, credit conditions look to be better than what corporate borrowers encountered during the financial crisis 12 years ago, when liquidity-stressed banks cut their exposure to revolvers. They downsized instruments or flatly refused to renew them. They also upped interest rates, shortened maturities, and enhanced their collateral positions.

However, only time will tell. Jacobson says his office is “inundated” with restructurings and forbearance arrangements.

Borrowers are drawing down their revolving lines of credit and adding on to existing credit facilities to ensure they can make payroll as revenues and profits shrink. Here is just a sample of the activity over the past few weeks:

• General Motors — drew down $16 billion from revolver
• Ford — drew down $15.4 billion of revolver
• Boeing — drew down entire $13.8 billion credit line
• Shell — arranged a new $12 billion credit facility
• ABInbev — drew down entire $9 billion credit facility
• Deere — renewed $8 billion revolving line of credit
• AT&T — landed new $5.5 billion term loan agreement
• Disney — secured new $5 billion one-year line of credit
• Fiat Chrysler — secured new $3.8 billion credit facility
• Carnival Cruise Lines — drew $3 billion from bank credit lines
• McDonald’s — drew $1 billion from a new 364-day credit facility agreement
• Honeywell — renewed $1.5 billion revolver
• Sysco — drew down $1.6 billion of $2 billion credit facility
• FedEx — drew down $1.5 billion from credit line
• Workday — secured a term-loan facility of $750 million and a revolver of $750 million
• GAP — drew down $500 million credit line
• iHeartMedia — drew down $350 million of $450 million revolver
• Tupperware — drew down $225 million from credit agreement
• Abercrombie — drew down $210 million from revolving facility
• Wendy’s — drew down $120 million from credit facility
• The Container Store — drew down $50 million from credit facility
• Live Nation — secured new $120 million revolving credit facility