medium · Corporate Credit Analysis covenants

A 'Springing' covenant in a revolving credit facility is generally seen as providing less protection than a standard 'Maintenance' covenant because:

1. It applies only to the interest rate margin charged on the facility, not to the underlying principal repayment schedule.
2. It only triggers when the borrower is already in a state of high utilization and likely cash stress.
3. It allows the borrower to unilaterally raise its own permitted leverage limit during a broad economic recession.
4. It functions as an 'incurrence' style test that only applies at the moment new debt is actually issued.

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