Restricted group
What is the restricted group in a leveraged facility agreement?
ONE OF 416 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
The restricted group is the set of companies in a borrower's group that the covenants of a leveraged facility agreement or bond bind: usually the parent and all its subsidiaries except any designated as unrestricted. Its members are limited in borrowing, granting security, paying out and moving assets, and the ratios are calculated on its earnings and debt. It is usually wider than the obligor group, the guarantors, so a restricted company giving no guarantee adds earnings to the ratios while the lender has no direct claim on its assets. Bank facilities for mid-sized businesses more often test the consolidated group or a named guaranteeing group, without the label.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// THE FULL PAGE
Restricted Group: Who the Covenants Bind and Count →
Three circles: the companies counted, bound and liable.
// WHAT IT IS NOT
A guarantor coverage test measures how much of the group's earnings the guarantors provide; the restricted group is the wider set of companies the covenants bind, whether they guarantee or not.
// WORKED IN
// NEXT TO IT
- Covenant headroom
- Negative pledge
- Condition precedent (CP)
- Event of default
- Covenant waiver
- Reservation of rights
- Term sheet
- Condition subsequent
- Review event
- Repayable on demand
- Material adverse change (MAC) clause
- Cross-default
- Change of control clause
- Cure period
- Compliance certificate
- Information undertakings
- Liquidity covenant
- Equity cure
- Springing covenant
- Covenant reset
- Covenant mulligan
- Covenant-lite (cov-lite)
- Incurrence covenant
- Test date (covenant)
- Permitted baskets
- Distribution lock-up
- Mandatory prepayment
- Clean-up period
- Certain funds
- Yank-the-bank clause (replacement of lender)
- Capex covenant
- Guarantor coverage test
- Frozen GAAP
- Covenant step-down
- Unrestricted subsidiary
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