Markets · 6 pages · 12 min

Why breaking one can matter more than the interest rate

Breaking a covenant can trigger default remedies, which can outweigh the loan's stated interest rate.

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From the opening

Breaking a covenant can matter more than the interest rate because the contract may treat the breach as a default and open remedies the coupon never described. The rate is the price of a loan that is still in good standing, and the breach is about whether that standing continues. The opening covers default can accelerate principal, waivers are renegotiations, and one breach can spread.

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Inside

Default can accelerate principal
Waivers are renegotiations
One breach can spread
The coupon assumes compliance
Where the idea stops applying
A distinction worth keeping

Sources

Events of default and acceleration
Covenant waiver negotiation

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Why breaking one can matter more than the interest rate

From the opening

Inside

Sources

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