medium · Corporate Credit Analysis
An analyst is evaluating the liquidity runway for a speculative-grade borrower. The firm has $50M in cash, an undrawn $100M revolver, and expects a negative Free Operating Cash Flow (FOCF) of $120M over the next year.
If the revolver has a maintenance covenant at 4.0x leverage and current leverage is 3.8x, what is the primary risk to the liquidity calculation?
- The FDIC may freeze the bank account containing the $50M in cash
- The firm will have to pay higher interest on the drawn portion of the revolver
- The revolver may become inaccessible due to a covenant breach as EBITDA falls
- The maturity of the revolver will be automatically accelerated by the negative FOCF
Sign up free to see the explanation and track your rank →
More Corporate Credit Analysis practice
- Apex Manufacturing has a total exposure at default (EAD) of… — What is the annual expected
- What is the company's Funds From Operations (FFO)?
- Which statement best reflects the credit risk synthesis?
- A credit agreement requires a borrower to maintain a Net Lev… — What type of covenant is t
- Using the Merton structural model intuition, if a company's equity volatility (sigma_V) in
- What is its CET1 ratio?
- If EBITDA is $150M, what is the entry leverage multiple?
- What is its EBITDA/Interest coverage ratio?