Equity Cure
Corporate Credit Analysis glossary · Credit Agreements & Covenants
Definition
A contractual right allowing sponsor-equity holders to contribute capital that is treated as EBITDA (or applied as debt paydown) to cure a covenant breach. Limited in frequency (e.g., not consecutive quarters, no more than 5 over the loan life).
Equity Cure in plain English
An equity cure is a get-out-of-jail card written into a loan for the company's owners (the 'sponsors'). If the business misses a financial promise to the lender — say its earnings ratio dips below the required line — the owners can inject their own fresh cash, which is then counted as if it were extra earnings (or used to pay down debt), patching the breach so the loan doesn't officially go into default. It's like a parent topping up your bank account right before rent is due so the check doesn't bounce. Lenders cap how often owners can pull this trick (for example, not two quarters in a row and no more than five times over the whole loan) so the escape hatch can't hide a business that's genuinely failing.
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Practice Equity Cure
A sponsor contributes $50M of new equity to Titan Corp to… What is this right called?
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