Equity cure
A contractual right to inject equity to remedy a financial covenant breach. Depending on the documents, the proceeds may be treated as deemed earnings before interest, taxes, depreciation and amortization (EBITDA) or used to reduce debt for specified covenant calculations.
Equity cure in round numbers
Hypothetical, in consistent monetary units for one test period: required covenant EBITDA is 100 and actual EBITDA is 90. Assume the agreement permits a deemed-EBITDA cure of 10 cash units. The test then uses 100, but the cash injection is not 10 of actual earnings. A debt-reduction cure would require its own contractual calculation.
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| Measure | Amount |
|---|---|
| Required covenant EBITDA | 100 |
| Actual EBITDA | 90 |
| Permitted cash cure | 100 − 90 = 10 |
| Covenant amount after assumed cure | 90 + 10 = 100; not actual earnings |
Terms Related to Equity cure
Covenant headroom · Covenant · Springing covenant · Financial distress · All of the glossary