Glossary
Credit and risk
What is breach and workout?
A failed test, and the negotiation that follows.
Amend and extend buys time for a fee, new capital defends value if you believe the plan, debt-for-equity swaps trade your claim for ownership, and foreclosure crystallises a loss and a reputation cost.
A worked example
A borrower tests at 6.4x against a 6.0x covenant. Rather than accelerate the loan, lenders usually grant a waiver in return for a fee of 25 to 50bps, a higher margin and monthly reporting.
Where it catches you in the game
- Each workout action has a recovery range and a reputation consequence.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what breach and workout does to your returns.