medium · Private Credit & Debt documentation-covenants-terms
A company is subject to a 5.0 million Minimum Liquidity covenant. It currently has6.0 million in total liquidity. The company enters a lease agreement requiring a $1.5 million security deposit (restricted cash).
What is the immediate effect on the covenant?
- No breach; lease deposits are considered 'eligible' liquidity.
- No breach; the cash is still on the balance sheet.
- Technical breach; but the company has a 30-day cure period.
- Technical breach; liquidity falls to $4.5 million.
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