medium · Private Credit & Debt loan-structures-instruments
A direct lender is underwriting a 'Software-as-a-Service' (SaaS) business with high recurring revenue but negative GAAP EBITDA. The lender uses a 'Debt to Recurring Revenue' covenant.
What is the most critical risk for the lender in this structure?
- The company's Depreciation and Amortization charges will spike, leading to a breach of the interest coverage ratio.
- The company may exhaust its cash runway before achieving profitability, making the revenue base unsalable.
- The SOFR base rate will decline, reducing the lender's income yield from the floating-rate loan.
- The lender will be unable to perfect a security interest in the company's physical inventory.
Sign up free to see the explanation and track your rank →
More Private Credit & Debt loan-structures-instruments practice
- What is the blended interest rate paid by the borrower?
- What is the blended interest rate margin the borrower pays on the total facility?
- A private credit fund is evaluating a 'Unitranche' loan for… — What is the borrower's expe
- A fund manager is valuing a senior loan to a private mid-mar… — Under ASC 820, how is this
- Which group is the fulcrum?
- What is the indicative margin for the 'last-out' lender?
- What is the primary risk factor the lender evaluates?
- If the company fails and liquidates for $2M after two years, what was the primary risk rea