medium · Private Credit & Debt loan-structures-instruments
A borrower has a Minimum Liquidity covenant of $2.5 million. It has $1.0 million in cash and a $5.0 million Revolver.
If the Revolver has a 'Springing' Leverage covenant at 25% utilization, and the borrower draws $1.5 million to increase its cash to $2.5 million, what has occurred?
- The borrower has improved its total net liquidity position.
- Liquidity has increased to $7.5 million.
- The borrower is in technical breach of the liquidity covenant.
- The Springing Leverage covenant has been triggered.
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