documentation-covenants-terms — Private Credit Practice Questions

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  1. A borrower's credit agreement includes a 'Negative Pledge'.… — Is this allowed?
  2. If the current SOFR rate drops to 0.25%, what is the all-in interest rate the borrower must pay?
  3. A loan is priced at SOFR + 600 bps with a 1.0% floor. If the current SOFR rate is 0.5%, what is the total inte
  4. If the equity tranche is $50M (10% of capital), what is the 'Cash-on-Cash' yield before defaults?
  5. What is the company's 'covenant headroom' in EBITDA terms?
  6. If the company subsequently raises a 'down round' at $6.00 per share, what is the fund's new conversion price?
  7. A loan agreement specifies that the borrower's Total Leverag… — How should this covenant be classified?
  8. Is the company in default?
  9. If Term SOFR is currently 0.75% and the loan was issued with a 2.0% Original Issue Discount (OID) over a 5-yea
  10. What is the immediate consequence for the CLO Equity holders?
  11. If current SOFR is 0.50%, what is the total coupon rate?
  12. What is the likely impact on the loan's fair value?
  13. If the company currently has $100M in debt, what is the minimum equity injection required to restore complianc
  14. If SOFR is currently 0.50%, what is the all-in interest rate paid by the borrower?
  15. If the expected life of the loan is 4 years and SOFR is currently 5.0%, what is the approximate all-in yield t
  16. If the net debt is $272 million, how much 'headroom' does the company have on its leverage covenant expressed
  17. If the current 3-month Term SOFR is 0.65%, what is the all-in coupon rate paid by the borrower?
  18. A 'Negative Pledge' clause in a credit agreement primarily restricts the borrower from:
  19. If the current market SOFR rate is 0.25%, what is the all-in interest rate?
  20. What is the minimum equity cure amount the sponsor must inject to restore compliance with the leverage covenan
  21. If the current SOFR rate is 0.50%, what is the all-in interest rate paid by the borrower?
  22. How much cash does the borrower actually receive at closing from this tranche?
  23. If the company issues a new incremental 'accordion' facility at a spread of 600 bps, and the original facility
  24. If SOFR resets to 0.50% and the loan is priced at 98.00 (OID), what is the current effective coupon rate?
  25. What is the Covenant EBITDA?
  26. If the borrower draws20M while SOFR is 4.5%, what is the total annual cost of the facility in dollars?
  27. If the unrated equity tranche is $50M, and the pool suffers a 2% annual default rate with 65% recovery, what i
  28. If SOFR rises to 6.00%, what is the borrower's effective interest rate?
  29. Which structure is most likely to result in a lower 'Loss Given Default' (LGD)?
  30. What is the amount of the premium paid to the lender?

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s Equity holders are required to inject additional fresh capital into the vehicle.","The interest rate on all of the loans in the collateral pool is automatically increased across the board."],"section":"documentation-covenants-terms","subcategory":"collateral-security-intercreditor","courseId":"private-credit-debt","stimulus":"A \\$500 million $CLO$ (Collateralized Loan Obligation) collateral pool suffers a series of defaults that reduce the par value of the loans. As a result, the Overcollateralization ($OC$) test fails.","question_stem":"What is the immediate consequence for the $CLO$ Equity holders?","seoSlug":"what-is-the-immediate-consequence-for-the-equity-holders-vde4og"},{"_id":"6a652bb3da22226f77b11eff","id":"PCD_203","difficulty":"easy","question":"An investor sees a loan priced at $SOFR + 600$ bps with a 1.00% $SOFR$ floor.\n\nIf current $SOFR$ is 0.50%, what is the total coupon rate?","options":["6.00%","7.00%","7.50%","6.50%"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"An investor sees a loan priced at $SOFR + 600$ bps with a 1.00% $SOFR$ floor.","question_stem":"If current $SOFR$ is 0.50%, what is the total coupon rate?","seoSlug":"if-current-is-0-50-what-is-the-total-coupon-rate-1i502c"},{"_id":"6a652bb3da22226f77b11f0d","id":"PCD_217","difficulty":"easy","question":"A $BDC$ portfolio is valued under $ASC\\ 820$. A specific loan was originated at par (\\$100) with a coupon of $SOFR + 550$. Due to an $EBITDA$ decline, the borrower's internal rating is downgraded, and the market yield for similar risk is now $SOFR + 750$.\n\nWhat is the likely impact on the loan's fair value?","options":["The value will increase to \\$102 to compensate for the higher risk.","The loan will be marked at a premium because it is now 'higher yield'.","The loan will remain at par due to its floating-rate nature.","The loan will be marked at a discount to par."],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A $BDC$ portfolio is valued under $ASC\\ 820$. A specific loan was originated at par (\\$100) with a coupon of $SOFR + 550$. Due to an $EBITDA$ decline, the borrower's internal rating is downgraded, and the market yield for similar risk is now $SOFR + 750$.","question_stem":"What is the likely impact on the loan's fair value?","seoSlug":"what-is-the-likely-impact-on-the-loan-s-fair-value-hidda1"},{"_id":"6a652bb3da22226f77b11f3c","id":"PCD_264","difficulty":"medium","question":"A borrower fails a quarterly leverage test and invokes its 'equity cure' right. The leverage covenant is 4.5x and the company's EBITDA is \\$20M, meaning debt must not exceed \\$90M.\n\nIf the company currently has \\$100M in debt, what is the minimum equity injection required to restore compliance?","options":["\\$45M","\\$5M","\\$10M","\\$20M"],"section":"documentation-covenants-terms","subcategory":"financial-covenants","courseId":"private-credit-debt","stimulus":"A borrower fails a quarterly leverage test and invokes its 'equity cure' right. The leverage covenant is 4.5x and the company's EBITDA is \\$20M, meaning debt must not exceed \\$90M.","question_stem":"If the company currently has \\$100M in debt, what is the minimum equity injection required to restore compliance?","seoSlug":"if-the-company-currently-has-100m-in-debt-what-is-the-minimu-h8am33"},{"_id":"6a652bb3da22226f77b11f36","id":"PCD_258","difficulty":"easy","question":"A borrower has a \\$150M floating-rate loan at SOFR + 575 bps with a 1.0% SOFR floor.\n\nIf SOFR is currently 0.50%, what is the all-in interest rate paid by the borrower?","options":["6.25%","1.00%","7.25%","6.75%"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A borrower has a \\$150M floating-rate loan at SOFR + 575 bps with a 1.0% SOFR floor.","question_stem":"If SOFR is currently 0.50%, what is the all-in interest rate paid by the borrower?","seoSlug":"if-sofr-is-currently-0-50-what-is-the-all-in-interest-rate-p-1haja5"},{"_id":"6a652bb3da22226f77b11f85","id":"PCD_337","difficulty":"medium","question":"A private debt fund originates a term loan to a middle-market healthcare company with the following terms: $SOFR + 600$ bps, a 1.00% $SOFR$ floor, and a $2\\%$ original issue discount ($OID$).\n\nIf the expected life of the loan is 4 years and $SOFR$ is currently 5.0%, what is the approximate all-in yield to the lender?","options":["11.50%","11.25%","12.00%","11.00%"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A private debt fund originates a term loan to a middle-market healthcare company with the following terms: $SOFR + 600$ bps, a 1.00% $SOFR$ floor, and a $2\\%$ original issue discount ($OID$).","question_stem":"If the expected life of the loan is 4 years and $SOFR$ is currently 5.0%, what is the approximate all-in yield to the lender?","seoSlug":"if-the-expected-life-of-the-loan-is-4-years-and-is-currently-1qi8ua"},{"_id":"6a652bb3da22226f77b11f95","id":"PCD_353","difficulty":"hard","question":"A company has $EBITDA$ of \\$85 million, cash interest of \\$17.7 million, and a leverage covenant set at 4.25×.\n\nIf the net debt is \\$272 million, how much 'headroom' does the company have on its leverage covenant expressed as a percentage?","options":["32.8%","1.05×","13.4%","24.7%"],"section":"documentation-covenants-terms","subcategory":"financial-covenants","courseId":"private-credit-debt","stimulus":"A company has $EBITDA$ of \\$85 million, cash interest of \\$17.7 million, and a leverage covenant set at 4.25×.","question_stem":"If the net debt is \\$272 million, how much 'headroom' does the company have on its leverage covenant expressed as a percentage?","seoSlug":"if-the-net-debt-is-272-million-how-much-headroom-does-the-co-1rmsdn"},{"_id":"6a652bb3da22226f77b11fb8","id":"PCD_388","difficulty":"easy","question":"A leveraged loan is priced at $SOFR + 575$ bps with a 1.00% SOFR floor.\n\nIf the current 3-month Term SOFR is 0.65%, what is the all-in coupon rate paid by the borrower?","options":["5.75%","6.40%","7.40%","6.75%"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A leveraged loan is priced at $SOFR + 575$ bps with a 1.00% SOFR floor.","question_stem":"If the current 3-month Term SOFR is 0.65%, what is the all-in coupon rate paid by the borrower?","seoSlug":"if-the-current-3-month-term-sofr-is-0-65-what-is-the-all-in-1pnlr3"},{"_id":"6a652bb3da22226f77b1200b","id":"PCD_471","difficulty":"easy","question":"A 'Negative Pledge' clause in a credit agreement primarily restricts the borrower from:","options":["Paying dividends or making distributions to shareholders while the debt remains outstanding.","Granting liens on its assets to any other creditors without the current lender's consent.","Issuing public statements that criticize or disparage the lender's reputation.","Investing capital in any line of business unrelated to its established core operations."],"section":"documentation-covenants-terms","subcategory":"collateral-security-intercreditor","courseId":"private-credit-debt","seoSlug":"a-negative-pledge-clause-in-a-credit-agreement-primarily-res-1ds3wr"},{"_id":"6a652bb3da22226f77b12033","id":"PCD_0511","difficulty":"easy","question":"A borrower has a senior secured loan with a coupon of SOFR + 600 bps and a SOFR floor of 1.00%.\n\nIf the current market SOFR rate is 0.25%, what is the all-in interest rate?","options":["7.25%","6.25%","1.00%","7.00%"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A borrower has a senior secured loan with a coupon of SOFR + 600 bps and a SOFR floor of 1.00%.","question_stem":"If the current market SOFR rate is 0.25%, what is the all-in interest rate?","seoSlug":"if-the-current-market-sofr-rate-is-0-25-what-is-the-all-in-i-fg0at8"},{"_id":"6a652bb3da22226f77b12058","id":"PCD_0548","difficulty":"hard","question":"A borrower has a senior debt facility of 200.0M. The credit agreement contains a leverage covenant of5.75xand an 'equity cure' provision. At the end of Q3, EBITDA falls to32.0M.\n\nWhat is the minimum equity cure amount the sponsor must inject to restore compliance with the leverage covenant?","options":["\\$20.0M","\\$8.0M","\\$16.0M","\\$1.75M"],"section":"documentation-covenants-terms","subcategory":"financial-covenants","courseId":"private-credit-debt","stimulus":"A borrower has a senior debt facility of 200.0M. The credit agreement contains a leverage covenant of5.75xand an 'equity cure' provision. At the end of Q3, EBITDA falls to32.0M.","question_stem":"What is the minimum equity cure amount the sponsor must inject to restore compliance with the leverage covenant?","seoSlug":"what-is-the-minimum-equity-cure-amount-the-sponsor-must-inje-1hzz34"},{"_id":"6a652bb3da22226f77b1202d","id":"PCD_0505","difficulty":"easy","question":"A floating-rate loan is priced at $SOFR + 500bps$ with a 1.00% SOFR floor.\n\nIf the current SOFR rate is 0.50%, what is the all-in interest rate paid by the borrower?","options":["5.50%","5.00%","6.50%","6.00%"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A floating-rate loan is priced at $SOFR + 500bps$ with a 1.00% SOFR floor.","question_stem":"If the current SOFR rate is 0.50%, what is the all-in interest rate paid by the borrower?","seoSlug":"if-the-current-sofr-rate-is-0-50-what-is-the-all-in-interest-ffx5b9"},{"_id":"6a652bb3da22226f77b1205c","id":"PCD_0552","difficulty":"easy","question":"A 20.0M term loan is issued with a2.0% Original Issue Discount (OID). The interest rate is SOFR + 500 bps and the tenor is 5 years.\n\nHow much cash does the borrower actually receive at closing from this tranche?","options":["\\$20.0M","\\$19.0M","\\$18.0M","\\$19.6M"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A 20.0M term loan is issued with a2.0% Original Issue Discount (OID). The interest rate is SOFR + 500 bps and the tenor is 5 years.","question_stem":"How much cash does the borrower actually receive at closing from this tranche?","seoSlug":"how-much-cash-does-the-borrower-actually-receive-at-closing-1i028m"},{"_id":"6a652bb3da22226f77b1206e","id":"PCD_0570","difficulty":"medium","question":"A company has a 'Most Favored Nation' (MFN) clause in its senior credit agreement.\n\nIf the company issues a new incremental 'accordion' facility at a spread of 600 bps, and the original facility's spread is 450 bps with an MFN protection of 50 bps, what is the new spread on the original facility?","options":["600 bps","550 bps","500 bps","450 bps"],"section":"documentation-covenants-terms","subcategory":"incurrence-cov-lite-protections","courseId":"private-credit-debt","stimulus":"A company has a 'Most Favored Nation' (MFN) clause in its senior credit agreement.","question_stem":"If the company issues a new incremental 'accordion' facility at a spread of 600 bps, and the original facility's spread is 450 bps with an MFN protection of 50 bps, what is the new spread on the original facility?","seoSlug":"if-the-company-issues-a-new-incremental-accordion-facility-a-elgd4p"},{"_id":"6a652bb3da22226f77b120d9","id":"PCD_0677","difficulty":"medium","question":"A borrower's interest rate is set at SOFR + 575 bps with a 1.00% SOFR floor.\n\nIf SOFR resets to 0.50% and the loan is priced at 98.00 (OID), what is the current effective coupon rate?","options":["6.25%","6.75%","7.15%","5.75%"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A borrower's interest rate is set at SOFR + 575 bps with a 1.00% SOFR floor.","question_stem":"If SOFR resets to 0.50% and the loan is priced at 98.00 (OID), what is the current effective coupon rate?","seoSlug":"if-sofr-resets-to-0-50-and-the-loan-is-priced-at-98-00-oid-w-1o8a4t"},{"_id":"6a652bb3da22226f77b120cf","id":"PCD_0667","difficulty":"medium","question":"A private debt manager is testing a leverage covenant. 'Consolidated EBITDA' is defined as Net Income plus interest, taxes, and D&A, plus restructuring charges capped at \\$5M. The company has \\$20M in Net Income, \\$10M interest, \\$5M taxes, \\$10M D&A, and \\$8M in restructuring costs.\n\nWhat is the Covenant EBITDA?","options":["\\$50M","\\$45M","\\$58M","\\$53M"],"section":"documentation-covenants-terms","subcategory":"financial-covenants","courseId":"private-credit-debt","stimulus":"A private debt manager is testing a leverage covenant. 'Consolidated EBITDA' is defined as Net Income plus interest, taxes, and D&A, plus restructuring charges capped at \\$5M. The company has \\$20M in Net Income, \\$10M interest, \\$5M taxes, \\$10M D&A, and \\$8M in restructuring costs.","question_stem":"What is the Covenant EBITDA?","seoSlug":"what-is-the-covenant-ebitda-1o8dab"},{"_id":"6a652bb3da22226f77b12109","id":"PCD_0725","difficulty":"medium","question":"A 50M RCF has a margin of SOFR + 350 bps and an undrawn commitment fee of 140 bps.\n\nIf the borrower draws20M while SOFR is 4.5%, what is the total annual cost of the facility in dollars?","options":["\\$2.02M","\\$4.00M","\\$1.88M","\\$2.30M"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A 50M RCF has a margin of SOFR + 350 bps and an undrawn commitment fee of 140 bps.","question_stem":"If the borrower draws20M while SOFR is 4.5%, what is the total annual cost of the facility in dollars?","seoSlug":"if-the-borrower-draws20m-while-sofr-is-4-5-what-is-the-total-pvgmjt"},{"_id":"6a652bb3da22226f77b1219f","id":"PCD_0875","difficulty":"hard","question":"A \\$500M CLO collateral pool generates \\$18.75M in annual interest income. The total cost of the rated debt tranches and management fees is \\$11.15M.\n\nIf the unrated equity tranche is \\$50M, and the pool suffers a 2% annual default rate with 65% recovery, what is the adjusted annual yield for the CLO equity holders?","options":["5.4%","15.2%","11.7%","8.2%"],"section":"documentation-covenants-terms","subcategory":"collateral-security-intercreditor","courseId":"private-credit-debt","stimulus":"A \\$500M CLO collateral pool generates \\$18.75M in annual interest income. The total cost of the rated debt tranches and management fees is \\$11.15M.","question_stem":"If the unrated equity tranche is \\$50M, and the pool suffers a 2% annual default rate with 65% recovery, what is the adjusted annual yield for the CLO equity holders?","seoSlug":"if-the-unrated-equity-tranche-is-50m-and-the-pool-suffers-a-1lm66x"},{"_id":"6a652bb3da22226f77b12169","id":"PCD_0821","difficulty":"medium","question":"A borrower has a 100M loan at SOFR + 500 bps. To hedge interest rate risk, the borrower enters into a 3-year interest rate swap where they pay 4.00% fixed and receive SOFR.\n\nIf SOFR rises to 6.00%, what is the borrower's effective interest rate?","options":["4.00%","9.00%","11.00%","10.00%"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A borrower has a 100M loan at SOFR + 500 bps. To hedge interest rate risk, the borrower enters into a 3-year interest rate swap where they pay 4.00% fixed and receive SOFR.","question_stem":"If SOFR rises to 6.00%, what is the borrower's effective interest rate?","seoSlug":"if-sofr-rises-to-6-00-what-is-the-borrower-s-effective-inter-m43190"},{"_id":"6a652bb3da22226f77b12202","id":"PCD_0974","difficulty":"medium","question":"An institutional lender is evaluating a 'Covenant-Lite' TLB vs. a traditional TLA. The borrower has cyclical cash flows and 5.5× leverage.\n\nWhich structure is most likely to result in a lower 'Loss Given Default' (LGD)?","options":["TLB has lower LGD due to bullet maturity","Both have equal LGD","Traditional TLA","Covenant-Lite TLB"],"section":"documentation-covenants-terms","subcategory":"incurrence-cov-lite-protections","courseId":"private-credit-debt","stimulus":"An institutional lender is evaluating a 'Covenant-Lite' TLB vs. a traditional TLA. The borrower has cyclical cash flows and 5.5× leverage.","question_stem":"Which structure is most likely to result in a lower 'Loss Given Default' (LGD)?","seoSlug":"which-structure-is-most-likely-to-result-in-a-lower-loss-giv-1midz9"},{"_id":"6a652bb3da22226f77b122b9","id":"PCD_1157","difficulty":"easy","question":"A borrower with a \\$30,000,000 loan and a '102 hard call' chooses to prepay the loan.\n\nWhat is the amount of the premium paid to the lender?","options":["\\$3,000,000","\\$200,000","\\$30,600,000","\\$600,000"],"section":"documentation-covenants-terms","subcategory":"pricing-terms-economics","courseId":"private-credit-debt","stimulus":"A borrower with a \\$30,000,000 loan and a '102 hard call' chooses to prepay the loan.","question_stem":"What is the amount of the premium paid to the lender?","seoSlug":"what-is-the-amount-of-the-premium-paid-to-the-lender-1e8iyj"}]}

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