Lev fin: Springing covenants vs incurrence covenants
Basically the title - bit confused are these the same.
Are springing and incurrence covenants the same?
Trending Content - Investment Banking Forum
| +166 | Evercore > Goldman and I don’t think it’s particularly close anymore | 59 | 50m |
| +152 | Article: Why UBS's Asian M&A bankers are thriving and UBS's American M&A bankers are not | 17 | 14h |
| +124 | I am a drunk MD AMA | 40 | 1d |
| +86 | UBS Offer Day | 30 | 1d |
| +75 | Santander IB? | 10 | 3d |
| +71 | I hate Wells Fargo | 19 | 16h |
| +51 | No return offer - feeling like a failure is an understatement | 20 | 11h |
| +50 | Think Twice before Recruiting for HOUSTON IB!! | 17 | 1h |
| +45 | How cooked am I as an incoming WF IB SA 2027? | 17 | 7h |
| +43 | WF Return offers | 28 | 2d |
Career Resources
Bump
No. Incurrence covenants are things like limitations in debt, liens, restricted payments (think dividends), and investments.
Springing covenants are financial covenants that only apply if certain conditions are met. An example would be a revolver with a leverage ratio covenant that is tested (i.e. springs) if utilization is above a certain %.
thank you, that is helpful
why do we not see springing covenants in term loans as I see them frequently in rcfs?
Mainly a difference in the types of lenders involved in revolvers vs. term loans. In the cov-lite days, TLB buyers (institutional clients) decided they could live without financial covenants. The banks in the revolvers somewhat followed suit by opting for springing financial covenants (but were often unwilling to have no financial covenants at all).
In the instance of a financial covenant that springs based on utilization, it sort of makes sense to protect yourself against a distressed borrower drawing down on your revolver pre-BK.
Not sure I agree with the other answer. Springing covenants by definition cannot apply to a term loan because TLB is fully drawn day-1 so there’s nothing to “spring”. You will see springing only in RCFs above 40% utilisation (no reason why but that’s the “standard”).
thank you
do super senior rcfs also have this springing covenant structure?
Maxime consequatur sit velit rerum repudiandae dolorem. Qui sunt consequatur quo reprehenderit at minus. Hic nemo impedit odit occaecati. Est et cum consectetur doloremque.
Harum voluptate ea provident nemo aliquid est ut. Nisi quas modi voluptatem eaque. Ex alias nostrum harum molestias eos quidem quaerat. Adipisci cupiditate eveniet et quae. Laboriosam numquam qui voluptas suscipit et. Optio non soluta amet ratione sunt.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...