Series 79 practice questionmediumCapital Structure Analysis
What is a springing maturity in a credit agreement?
- AA provision that accelerates debt maturity if a nearer-dated obligation is not refinanced by a stated date✓ Correct answer
- BA maturity that shortens whenever LIBOR rises
- CA right of lenders to convert debt into equity immediately
- DAn automatic extension option available only to equity holders
Explanation
Why A — A provision that accelerates debt maturity if a nearer-dated obligation is not refinanced by a stated date
A provision that accelerates debt maturity if a nearer-dated obligation is not refinanced by a stated date Springing maturities protect lenders from being left behind a large earlier-maturing instrument that could create refinancing risk. They are common in structures with layered maturities and force issuers to address looming debt walls earlier.
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