medium · Corporate Credit Analysis covenants
In the context of credit agreement negotiations, why would a Private Equity sponsor strongly prefer 'cross-acceleration' over 'cross-default' in a TLB facility?
- It allows the borrower to permanently ignore payment defaults occurring on other unrelated debt facilities.
- It substantially lowers the interest rate margin charged on the facility due to the lender's decreased perceived risk.
- It provides a 'bridge' to resolve minor defaults elsewhere without losing control of the entire capital structure.
- It completely eliminates the materiality threshold requirement that would otherwise apply to other outstanding indebtedness.
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