How to Run a Waiver Negotiation After a Covenant Breach

The value of catching the breach before the lender does

Spotting an impending ratio breach before the lender does, and proactively disclosing it, reinforces the company's credibility and starts the negotiation on far more constructive ground.

When the lender catches the breach through its own monitoring process instead, it usually damages trust and can lead to tougher terms being demanded in subsequent negotiations.

Preparing the waiver request

An effective waiver request doesn't just explain why the breach occurred; it also clearly lays out whether the breach is temporary or structural, a corrective action plan, and the future compliance outlook.

This preparation is usually backed by an updated financial model and a realistic recovery scenario; empty promises don't win a lender's trust.

The price demanded in exchange for a waiver

Lenders typically demand something in exchange for a waiver: an additional interest margin, a waiver fee, tighter reporting obligations, or additional collateral.

The scope of that price largely depends on the severity of the breach and the company's bargaining power; that bargaining power is usually stronger in companies with more than one lender.

The difference between a permanent amendment and a temporary waiver

A waiver is usually a one-time, retrospective release; it doesn't permanently change the terms of the agreement itself.

If the breach is expected to recur, negotiating a permanent amendment that changes the agreement's terms is usually a sounder solution than a one-off waiver.

Coordination when there are multiple lenders

In a company with multiple lenders, waiver negotiations usually require all lenders to have equal information and act on the same terms; otherwise, one lender behaving differently from the others can undermine the integrity of the process.

In such cases, a lender committee is typically formed, and the negotiation is conducted through that committee.

Frequently asked questions