Private Equity Buzz Phrase: Equity Cure

Since I'm worried about private equity borrowing levels, my Buzz Phrase for the week is an "Equity Cure."

An Equity Cure is a legal right allowing a private equity investor (or any other shareholder) to inject further cash into a portfolio company as earnings/revenue.  The cash injection improves the company's performance against lending ratios and protects it from breaching its covenants.

Needless to say, lenders hate including an Equity Cure in their loan agreements because it can prevent them from taking action when a business is under-performing.  Experienced bankers will limit the right to use an Equity Cure-- for example, no more than two applications in a twelve-month period.