medium · Corporate Credit Analysis covenants
A borrower has a $200 million builder basket and wants to pay a $50 million dividend. However, the 'limitation on debt' covenant is currently being breached.
Can the borrower still use the builder basket for the dividend?
- No, because restricted payments usually require that no default or event of default exists.
- No, unless the borrower instead draws on the General Basket to fund it
- Yes, provided the builder basket capacity accrued before the debt covenant breach began
- Yes, since paying a dividend is an equity event unrelated to the debt incurrence covenant
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