medium · Debt Capital Markets credit-ratings-risk
In a 'First-Out / Last-Out' (FOLO) unitranche structure, how does the springing maintenance covenant typically apply?
- The covenant only applies to the 'Last-Out' lenders, as they are the ones taking the most risk.
- The covenant is usually managed by the 'First-Out' lenders (often banks providing the revolver) who have the most conservative risk profile.
- The covenant is automatically waived if the First-Out lenders are repaid in full.
- The 'Last-Out' lenders can override any waiver given by the 'First-Out' lenders.
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