Covenant Holiday
Short definition
A covenant holiday is a period when a financial covenant is not tested or the threshold is eased. It is used to breathe after an acquisition, a build or a shock; it does not retire the debt.
Detailed explanation
The holiday is packed with reporting, dividend and extra-debt bans. When it ends the old (or a tighter) threshold returns.
The market can read a holiday as a weakness signal. Fees and a wider spread are the all-in cost of the holiday.
Why it matters for the CFO
An LBO and large capex can break year-one DSCR without a holiday. Without it close may fail; without discipline year two is default.
How to read it
A holiday is not a waiver. A waiver forgives a past breach; a holiday defers a future test. Both consume headroom.
Related calculators
Güven Sayılgan’s writing on this topic
The Hidden Rules of Getting Bank Credit
In bank lending decisions, what matters most is not only the documents submitted but the risk profile the firm presents. A strong application should include a s
3 min read
Read → FinansWhat Do Cash Flow Available for Debt Service (CFADS) and the Debt Service Coverage Ratio (DSCR) Mean?
CFADS shows how much cash from operations can be allocated to interest and principal; DSCR shows how far that cash covers current debt service. Debt capacity is
9 min read
Read → FinansHow Should Firms Be Financed in a High-Interest Environment? 15 Core Principles
In a high-interest environment, financing decisions must be made with greater care. Fifteen principles for assessing cost, maturity, currency, and cash-flow eff
3 min read
Read →Read these first
Related terms
What to learn next
Definitions are educational. They are not investment, credit or tax advice.