medium · Corporate Credit Analysis

What is the primary credit risk associated with a 'Springing' financial covenant in a Term Loan B facility?

1. It only provides protection when the revolver is significantly drawn, which often occurs late in the distress cycle.
2. It prevents the sponsor from exercising equity cure rights that are otherwise standard in the credit agreement.
3. It automatically subordinates the Term Loan B to the Revolving Credit Facility under the intercreditor agreement.
4. It forces the borrower into immediate bankruptcy the moment reported EBITDA declines by more than 10% year over year.

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