medium · Debt Capital Markets credit-ratings-risk
A borrower has a 6.0x maintenance covenant. It has $600 million in Total Debt and $110 million in EBITDA.
If the company issues an additional $100 million in debt to fund a share buyback, what happens to its compliance?
- It breaches the covenant because EBITDA was not adjusted for the buyback.
- It remains compliant because buybacks are usually permitted under debt incurrence tests.
- It remains compliant with a 6.36x ratio.
- It breaches the covenant as leverage rises to 6.36x.
Sign up free to see the explanation and track your rank →
More Debt Capital Markets credit-ratings-risk practice
- In the context of Debt Capital Markets, what is a leverage-based margin ratchet?
- Why is the Administrative Agent's role important for the margin ratchet?
- In Debt Capital Markets, who is generally the 'payer' of the credit spread in a standard b
- What happens to the credit spread of a 'fallen angel' issuer?
- In the expected loss framework, what is the relationship between the Recovery Rate (RR) an
- What is the lowest rating an issuer can hold and still be considered 'Investment Grade' by
- In a Credit Default Swap (CDS), what is the primary obligation of the protection seller?
- What does a 'negative basis' indicate?