medium · Debt Capital Markets credit-ratings-risk
In a distressed credit situation, why might lenders push for a 'gross' leverage covenant instead of a 'net' leverage covenant?
- Because gross leverage is easier to calculate during an audit
- To ensure the borrower pays a higher interest rate
- To prevent the borrower from appearing compliant by simply drawing the revolver and holding cash
- Because net leverage is illegal in some jurisdictions
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