medium · Debt Capital Markets credit-ratings-risk
A $500 million term loan B (TLB) is usually 'Covenant-Lite,' while the associated $50 million Revolving Credit Facility (RCF) often has a springing maintenance covenant.
In the event of an RCF covenant breach that is not cured, what is the impact on the TLB holders?
- The term loan B automatically converts into a revolving credit facility, handing the borrower additional liquidity to fix the problem.
- The TLB coupon steps up to the contractual 'Default Rate,' which is customarily set around 200 basis points above the original loan margin.
- The TLB holders may immediately demand full repayment, since a breach of any single covenant cross-defaults every facility in the entire combined debt structure.
- The TLB holders do not have a direct default trigger; the default is 'cross-accelerated' only if the RCF lenders actually accelerate their loan.
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?
- What happens to the credit spread of a 'fallen angel' issuer?
- In Debt Capital Markets, who is generally the 'payer' of the credit spread in a standard b
- In a cov-lite loan, which event would most likely trigger a financial ratio test?
- In the context of credit covenants, what is the primary difference between a maintenance c
- In a Credit Default Swap (CDS), what is the primary obligation of the protection seller?
- Which of the following is NOT typically a 'Restricted Payment'?