easy · Corporate Credit Analysis
A retail borrower is subject to a 'springing' maintenance covenant that is tested only if its Revolving Credit Facility is drawn more than 35%. The facility size is $100M.
If the borrower draws $40M to fund seasonal inventory, what is the immediate credit implication?
- The borrower must now comply with the specified financial ratios in the agreement
- The interest margin on the entire debt stack steps up automatically now
- The borrower has triggered a technical event of default under the agreement
- The stated maturity of the revolving credit facility itself is shortened by twelve months
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