High-yield covenants usually, among other restrictions, restrict
an issuer's ability to incur debt, make restricted payments
(restricted payments can include making certain dividends, equity
repurchases, investments and payments on subordinated debt) and
sell assets. These covenants can contain exceptions that a)
generally permit particular types of transactions, b) permit
transactions in any amount so long as a ratio test is satisfied
(for example, the ability to incur debt so long as the interest
coverage ratio would be at least 2.0 to 1.0) or c) provide baskets
permitting transactions up to an amount not tied to a ratio
test.
Baskets permitting transactions up to an amount not tied to a
ratio test often provide that such transactions are permitted up to
the greater of a fixed dollar amount and a “grower”
amount based on assets or EBITDA.
