Springing covenant

A covenant whose test applies when specified contractual trigger conditions are met. A financial test may be linked to revolver utilization or availability; the agreement defines the trigger and testing requirements.

Springing covenant in round numbers

Hypothetical: an agreement requires a particular financial test at quarter-end only when defined revolver utilization is greater than 40% of the commitment. At exactly 40%, that stipulated trigger is not met; above 40%, it is. This says nothing about other covenants or obligations, which continue to apply under their own terms.

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