easy · Private Credit & Debt documentation-covenants-terms
A borrower has a 'Covenant-Lite' loan structure with an 'Incurrence-Based' leverage test of 6.0x. The company's leverage currently sits at 7.5x due to a significant EBITDA decline.
Is the company in default?
- No, unless the company attempts to take a specific restricted action like issuing new debt or paying a dividend.
- No, because incurrence covenants only apply to interest coverage, not leverage.
- Yes, because any breach of the leverage ratio is an automatic Event of Default.
- Yes, but only if the 'Springing' component of the revolver is activated.
Sign up free to see the explanation and track your rank →
More Private Credit & Debt documentation-covenants-terms practice
- If the current SOFR rate drops to 0.25%, what is the all-in interest rate the borrower mus
- A borrower's credit agreement includes a 'Negative Pledge'.… — Is this allowed?
- A loan is priced at SOFR + 600 bps with a 1.0% floor. If the current SOFR rate is 0.5%, wh
- If Term SOFR is currently 0.75% and the loan was issued with a 2.0% Original Issue Discoun
- What is the company's 'covenant headroom' in EBITDA terms?
- A loan agreement specifies that the borrower's Total Leverag… — How should this covenant b
- What is the immediate consequence for the CLO Equity holders?
- If the company subsequently raises a 'down round' at $6.00 per share, what is the fund's n