Stuart Brinkworth

Liquidity covenants to the fore

With interest rates remaining at record levels and businesses still struggling with increased costs and the fall-out from the cost-of-living crisis, many businesses have been unable to meet leverage maintenance covenant requirements in their deals. As a quid-pro-quo for covenant relief, lenders often seek to impose a minimum liquidity covenant to ensure the business remains operationally solvent during the covenant relief period. This article explores what a liquidity covenant is and the issues facing sponsors and lenders in negotiating them.