Springing covenant
What is a springing covenant on a revolving credit facility?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A springing covenant is a financial covenant tested only when a trigger is met, most often when a revolving facility is drawn above a set share of its commitment. Below the trigger the borrower has no maintenance test at all; above it, a ratio such as leverage applies. It suits lenders whose real exposure is the revolver, and it means a borrower can deteriorate a long way without breaching anything, so long as it does not draw, which is exactly when the test arrives.
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.
// 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
- Covenant reset
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