hard · Private Credit & Debt portfolio-management-monitoring-workouts

Under a typical credit agreement's cure mechanics, what is the lender's correct technical objection that most strongly protects its position?

1. The cure amount must be applied to reduce debt (or be netted from net leverage) and cannot also be counted as added EBITDA while remaining as balance-sheet cash, because that would let the same dollar fix the covenant twice and would inflate go-forward EBITDA-based baskets
2. A subordinated shareholder note is not 'cash equity' and therefore cannot fund a cure under any circumstances, so the breach must trigger acceleration regardless of the amount contributed
3. The cure fails because $14M is mathematically insufficient to bring 5.9x leverage down to 5.5x on $120M of debt, so a larger contribution is required before the cure can be deemed effective
4. Because the proposed cure is the sponsor's first of the period, consecutive-cure limits are irrelevant and the lender's only valid objection is that the cure must be received within the cure period rather than how it is characterized

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