Equity Cure
Private Credit glossary · Underwriting & Credit Analysis
Definition
A sponsor's right to inject fresh equity into a borrower within a defined cure period (typically 10–15 business days) after a financial-covenant breach. The cash is applied either to (i) prepay debt — reducing the leverage numerator — or (ii) be deemed an EBITDA add-back for covenant-testing purposes only, increasing the denominator. Subject to typical limitations: frequency cap (2–3 times over the loan's life, no more than 2 consecutive quarters), real-money requirement (cash must come from outside the credit group, not from drawing the revolver), and minimum/maximum cure amount tests. A frequently-used cure signals an underwriting miss, not a solution.
Equity Cure in plain English
When a company borrows, the loan comes with promises ('covenants') — like keeping debt from getting too large compared to earnings. An equity cure is the owner's contractual 'get-out-of-jail' move: if the company trips a covenant, the owner can wire in fresh cash within a short window (often 10–15 business days) to fix the picture, either by paying down debt or by having that cash counted as extra earnings just for the covenant math. But there are guardrails so it can't be abused: you can only do it a couple times over the loan's life, not many quarters in a row, and the money must be real outside cash — you can't just borrow from the company's own credit line to 'cure' it. Here's the tell for lenders: a company reaching for this button often signals the loan was underwritten too optimistically, not that everything's fine.
Practice Equity Cure
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