Equity Cure Rights: Q4 2022/Q1 2023 Update

Equity cure rights permit an investment of cash in the borrower—typically made by a holding company, sponsor, or other shareholder—to allow the borrower to comply with financial maintenance covenants in the credit agreement, thus preventing or repairing a breach of that covenant.  The scope of equity cure rights may vary based on the type of financing and size of the transaction, and inclusion of equity cure provisions is common.

According to Market Standards, out of 266 deals surveyed in Q4 2022, 15 (5.6%) included an equity cure right (see the search in Market Standards). However, that number increased in Q1 2023—out of 196 deals surveyed, 18 deals (9.2%) included an equity cure right (see the search in Market Standards). Read this practice note to learn more about equity cure rights.

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Related Content

• Events of Default Resource Kit
  Refer to this resource kit for an overview of events of default in credit agreements.

• Financial Covenants and EBITDA Calculations in Credit Agreements
  Check out this practice note, which describes the use of financial covenants in credit agreements. It also discusses how EBITDA is defined in a credit agreement, which is a critical factor in calculating a borrower’s compliance with most finance covenants and its ability to incur additional indebtedness.

• Financial Covenants Clauses (Credit Agreement)
  Use this financial covenant clause if you are drafting a credit agreement for a syndicated loan transaction.

• Affirmative, Negative, and Financial Covenants
  Read this practice note for an overview of the covenants found in credit agreements, along with the processes by which loan parties are captured, or not, by those covenants. 

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