medium · Private Credit documentation-covenants-terms
What is a 'Springing Financial Covenant'?
- A requirement that the company's reported EBITDA must grow by at least 10% in every single fiscal year of the term.
- A covenant that only becomes active and tested if a certain condition is met, such as drawing more than 35% of the Revolver.
- A provision that lets the borrower jump ahead of other secured creditors in the contractual recovery waterfall priority ranking.
- A covenant that is only ever tested and formally enforced during the spring and summer calendar months of each fiscal year period.
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