hard · Private Credit & Debt documentation-covenants-terms
A lender is analyzing a 'Covenant-Lite' loan versus a traditional 'Maintenance' covenant loan. The borrower's EBITDA drops 30%, causing its leverage to rise to 5.5× against a 4.5× threshold.
Which of the following is the most likely outcome under the Cov-Lite structure?
- The lender can immediately accelerate the loan and appoint a receiver.
- No default occurs unless the borrower takes a specific action like issuing new debt.
- The borrower must inject an equity cure to restore the 4.5× ratio.
- A technical default is triggered immediately upon the quarterly financial filing.
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