medium · Corporate Credit Analysis covenants
What is the primary credit risk associated with a 'Springing' financial covenant in a Term Loan B facility?
- It only provides protection when the revolver is significantly drawn, which often occurs late in the distress cycle.
- It prevents the sponsor from exercising equity cure rights that are otherwise standard in the credit agreement.
- It automatically subordinates the Term Loan B to the Revolving Credit Facility under the intercreditor agreement.
- It forces the borrower into immediate bankruptcy the moment reported EBITDA declines by more than 10% year over year.
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