medium · Debt Capital Markets credit-ratings-risk
In a 'Covenant-Lite' loan, the absence of financial maintenance covenants increases the importance of the 'Negative Pledge' and 'Lien' provisions.
Why is this the case?
- Because the provisions automatically convert the outstanding loan from a floating-rate basis to a fixed-rate one once bankruptcy is filed.
- Because they prevent the borrower from layering in new secured debt that could prime the existing lenders before a default is even triggered.
- Because they obligate the borrower to prepay and amortize the loan whenever the market value of the company's common equity drops below a set floor.
- Because they bar the company from appointing or replacing its chief executive officer without first obtaining the consent of the lender group.
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'?