Covenant Breach

When a borrower fails to meet a financial or operational condition specified in a loan agreement — such as a minimum DSCR or maximum leverage ratio — giving the lender contractual remedies.

Covenants exist to give a lender an early warning and a contractual lever before a loan reaches default. A breach doesn't always mean default outright — many loan agreements specify cure periods or step-in rights — but it does trigger lender notification requirements and often a cash sweep or additional reporting.

Tracking covenant compliance across a portfolio in real time, rather than discovering a breach at the next scheduled reporting date, is the difference between managing a credit issue proactively and reacting to one after it has already escalated.