medium · Private Credit & Debt underwriting-credit-analysis
A borrower identifies that it will breach its leverage covenant next quarter. The sponsor proposes an 'Equity Cure' of $10M.
If the Credit Agreement defines the cure as 'Deemed EBITDA' for the quarter it is injected and the three subsequent quarters, how does this impact the leverage ratio (Debt / LTM EBITDA)?
- It increases the denominator by $10M for the next four rolling periods.
- It only provides a cure for the specific quarter in which the breach occurred.
- It reduces the numerator (Debt) by $10M immediately.
- It has no effect on the LTM calculation since it is a one-time injection.
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