A company has a €200M RCF with a net leverage covenant of 3.5x. After a large acquisition, net debt/EBITDA is 3.8x. You have a cure right to inject equity. The CFO asks: should we cure now or wait? What factors drive your decision?
An advanced Corporate Treasury question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
Key factors: 1) Likelihood of EBITDA improvement—if temporary, waiting may avoid dilution; 2) Cost of equity vs. covenant breach penalty; 3) Relationship with lenders—curing shows commitment; 4) Other covenants (e.g., interest coverage) and headroom; 5) Market conditions—if equity is cheap, cure now. I'd model projections and assess risk of further covenant deterioration before deciding.
WHAT INTERVIEWERS LISTEN FOR
- ✓EBITDA outlook
- ✓Cost of equity vs. breach
- ✓Lender relationship
- ✓Other covenants
- ✓Market conditions
COMMON MISTAKES
- ✗Always cure immediately
- ✗Ignore other covenants
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