easy · Private Credit documentation-covenants-terms

Why do private credit lenders typically prefer 'Maintenance Covenants' over 'Incurrence Covenants'?

1. They are tested only whenever the borrower chooses to pay out a dividend or pursue an acquisition.
2. They let the borrower incur additional new debt at essentially any time without ever notifying the lender.
3. They act as an early warning system by testing financial health every quarter regardless of borrower action.
4. They guarantee outright that the company's reported EBITDA figure will never decline at any point during the loan.

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