Covenant territory is when your TTM P&L is hovering close to the covenant thresholds.
Being in covenant territory affects an independent sponsor's decision-making. Every expense is scrutinized, most investments are shelved, you hesitate to be proactive with team members, and you obsess over revenue trends.
Covenant territory is akin to being a public company; short-termism and a focus on the next quarter deters long-term value creation.
