Springing Covenant
Private Credit glossary · Documentation, Covenants & Terms
Definition
A maintenance covenant that activates ('springs') only when a specified condition is met — most commonly when revolver utilization exceeds sim 35% of the revolving commitment. Critical caveat: a springing covenant is strictly weaker than a hard maintenance covenant because it offers no protection during the deterioration phase when the borrower is funding losses with operating cash flow rather than revolver draws. The lender effectively only gets a test once stress is already visible. Increasingly common in upper-middle-market cov-lite TLBs as a borrower–lender compromise.
Springing Covenant in plain English
When someone lends a company money, they often attach rules called covenants — health checks the borrower must keep passing, like a gym membership that quietly cancels if you stop showing up. A 'springing' covenant is a health check that stays switched off and only 'springs' to life once a specific trigger is hit — usually when the company has borrowed more than about 35% of its emergency credit line (its 'revolver'). The catch: a company only leans hard on that emergency line after it's already in trouble, so the lender doesn't get to test the borrower's health until the sickness is obvious. That makes it strictly weaker than a normal 'always-on' maintenance covenant, which is exactly why it's a popular compromise in borrower-friendly loans.
Learn these first
Related Private Credit terms
Private Credit practice questions · Private Credit flashcards · Private Credit study guide