How do you handle a covenant breach?
An advanced Private Equity question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
First: don't panic. Lenders rarely accelerate immediately. Steps: (1) identify the breach and its magnitude, (2) prepare a remediation plan with specific actions and timeline, (3) proactively approach lenders (before they find out from monitoring), (4) negotiate a waiver or amendment (often comes with fees of 0.5-1% and tighter terms), (5) if fundamental: consider equity cure (GP injects equity to reduce leverage ratio).
WHAT INTERVIEWERS LISTEN FOR
- ✓Identify breach magnitude
- ✓Prepare remediation plan
- ✓Proactive lender communication
- ✓Negotiate waiver or amendment
- ✓Consider equity cure
COMMON MISTAKES
- ✗Panicking or ignoring breach
- ✗Waiting for lender to discover
- ✗Assuming automatic acceleration
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