medium · Private Credit documentation-covenants-terms
A borrower has $20M EBITDA and $80M Senior debt (4.0 ×). It acquires a target for $40M (100% debt funded) that contributes $10M in EBITDA.
If the agreement permits incremental debt on a 'no-worse-than' leverage basis, is the transaction permitted?
- Yes, because pro-forma leverage is 4.0 × (unchanged)
- Yes, but only if they use a Freebie basket
- No, because the borrower incurred $40M in debt
- No, because 4.0 × is too high for middle-market deals
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