medium · Corporate Credit Analysis
A B2-rated borrower has a Senior Secured Term Loan with a 'cross-acceleration' provision and a Senior Unsecured Bond with a 'cross-default' provision.
If the borrower misses a payment on a subordinate equipment lease exceeding the materiality threshold, but the lease-holder has not yet demanded immediate repayment, which of the following describes the status of the debt instruments?
- The Term Loan is in default because bank debt always carries stricter triggers than public bonds.
- Both the Senior Unsecured Bond and the Term Loan are in default.
- The Senior Unsecured Bond is in default, but the Term Loan is not.
- Neither instrument is in default because the lease is subordinate to the bank debt.
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