Should a breach of a financial covenant occur, an equity cure right is a right for the shareholders to invest additional equity or subordinated debt into the Group to cure that breach.

The standards applicable to equity cures have been loosened in favor of borrowers in recent years. Traditionally, borrowers have had the opportunity to cure a ratio breach, with the cure amount used to notionally reduce total net debt. A stronger position increasingly obtained by borrowers is for the cure amount to be added to EBITDA, flattering to the relevant ratio.

Fintep will help you to answer the following points:
· Timing deadlines for an equity cure being implemented.
· How the cure amount is to be applied?
· Whether there is a requirement to repay debt using any portion of the equity cure amount and whether there is a restriction on “over cures”?
· How the equity cure amount is treated for future financial covenant tests once injected; is the relevant cash required to be retained by the business?
· Restrictions on equity cure rights in terms of quantum and number per financial year or in consecutive testing periods?

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