hard · Private Credit & Debt loan-structures-instruments

From the TLB lender's perspective, what is the most consequential second-order risk created specifically by this exclusion?

1. It lets the borrower draw the revolver in cash up to the 35% line and then convert further liquidity needs into undrawn or cash-collateralized L/Cs, keeping reported utilization below the trigger so the leverage covenant never springs despite real liquidity stress
2. It accelerates the springing covenant because L/C exposure is contingent and conservative accounting forces earlier testing once any L/C is issued, over-protecting the TLB lender
3. It has no practical effect because letters of credit are funded obligations identical to cash draws and therefore count toward the 35% numerator regardless of the definitional carve-out
4. It primarily benefits the TLB lender by ensuring the revolver bank, not the term lender, absorbs the first dollar of any covenant breach through the L/C facility

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