medium · Debt Capital Markets
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 TLB automatically converts to a revolving facility to provide the borrower with more liquidity to fix the problem.
- The TLB interest rate increases to the 'Default Rate,' which is usually 200 bps higher.
- The TLB holders can immediately demand repayment because any breach of any covenant is a 'cross-default' for the whole 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.
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