Covenant Breach (Covenant Default)
A covenant breach, or covenant default, occurs when a borrower fails to satisfy a covenant in its loan agreement. It is usually a technical (non-payment) default that triggers lender remedies such as a cure period, a waiver, repricing, or acceleration, even while the borrower is still making payments on time.
Technical default versus payment default
A payment default is a missed principal or interest payment. A technical default is any other violation, including a tripped financial covenant, a late compliance certificate, or a breach of a negative covenant. Most covenant breaches are technical defaults, and they hand the lender leverage before the loan stops paying.
Cure periods, waivers, and remedies
The agreement usually provides a cure period (sometimes an equity cure), the option of a waiver or amendment in exchange for a fee or tighter terms, a reservation of rights, or, in a serious uncured breach, acceleration and enforcement against collateral.
Why it matters
An undetected breach is both a credit risk and a reporting risk. Zolvo automates covenant compliance monitoring and LP and investor reporting against reconciled data, alerting on an approaching or actual breach so the lender acts while remedies still have teeth.