medium · Private Credit loan-structures-instruments
A lender provides a 'springing' leverage covenant set at 6.0x that only activates when revolver utilization exceeds 35%. The company has a $50M revolver (currently $15M drawn) and $250M in term debt.
If EBITDA is $40M, is the company in compliance if the covenant threshold is 6.0x?
- Yes, because the covenant is not currently active.
- No, because any revolver draw triggers the test.
- Yes, because the leverage ratio is 5.0x.
- No, because the leverage ratio is 6.6x.
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