What's the difference between an equity cure and a capital injection?
An advanced Private Equity question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
Equity cure: GP injects cash specifically to cure a covenant breach (e.g., reduces net debt to get back below 5.5x). Usually limited to 2-3 per fund, and must be used within a cure period. Capital injection: GP puts additional equity into the company for operational reasons (fund growth, cover losses). Both increase GP's exposure. Equity cures are 'band-aids'; if you need more than 2, the investment thesis is broken.
WHAT INTERVIEWERS LISTEN FOR
- ✓Equity cure fixes covenant breach
- ✓Capital injection funds operations
- ✓Cure limited to 2-3 per fund
- ✓Cure must be within cure period
- ✓Multiple cures indicate broken thesis
COMMON MISTAKES
- ✗Confusing cure with capital injection
- ✗Thinking cure is unlimited
- ✗Ignoring cure period constraint
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