Waiver

A waiver is the lenders’ decision to release the borrower from a provision of the facilities agreement, for a limited period or permanently. It generally follows a financial covenant breach, when the company remains able to pay its instalments. Without a waiver, the breach is an event of default that gives lenders the right to demand early repayment. The request is negotiated with the majority of lenders set by the agreement and comes at a cost: a waiver fee of 0.5% to 1% of total debt, and a margin increase of 0.5 to 2 percentage points on the loans whose risk has increased. Lenders frequently add conditions in return, such as monthly reporting, a limit on dividends or a new business plan. In the agreement, the definition of the word “continuing” matters: the borrower negotiates that an event of default ceases to be continuing as soon as it is remedied or waived. It is in your interest to file the request before the test date, to quantify it on a revised budget and to limit its wording to the ratio and the periods concerned.

A company carries €120m of debt and expects leverage of 5.6x at 30 June against a 5.0x covenant. It requests a waiver covering the June and September tests. The lenders grant it in return for a 0.75% fee, or €900,000, a margin increase of 0.50 percentage point until leverage returns below 5.0x and monthly cash reporting.

• The required majority of lenders and the timing of the request.
• The scope of the waiver: ratio concerned, periods covered, duration.
• The cost: waiver fee and margin increase.
• The conditions requested in return: reporting, dividend limits, revised plan.
• The definition of “continuing” in the agreement.