hard · Corporate Credit Analysis covenants
A leveraged borrower has a $100M Revolving Credit Facility. The facility has a springing maximum total-leverage covenant of 6.0x that triggers only when drawings exceed 35% of the commitment. The borrower carries $140M of total debt and $20M of EBITDA, with revolver drawings of $40M.
Which of the following is true?
- The covenant is not tested because drawings are below the threshold.
- The covenant is not tested because leverage is below 6.0x.
- The covenant is tested and the borrower is in breach.
- The covenant is always tested at every quarter end.
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