Although the early identification of signs of distress is very important in the restructuring process, it is important to be aware that actual restructuring is only required when certain events happen. These are referred to as restructuring triggers. Some of the major restructuring triggers include covenant breaches. Covenants in a facility agreement, set out what a company must do, affirmative covenants, and must not do negative covenants. Covenants can be financial, for example, maintaining a net leverage ratio typically measured as net debt to EBITDA below a certain figure or non-financial. For example, the borrower must provide audited financial statements within 60 days of its fiscal year end.

When a company fails to comply with a covenant set out under a facility agreement, what is known as an event of default occurs, and this allows the lenders to demand immediate full repayment of their outstanding loans in practice. However, when an event of default does happen, lenders typically will not immediately demand full repayment. An initial response from the lender might be to ask for waivers, or they might use this event to renegotiate more favorable terms, such as higher interest rates in the existing loan agreement.

Covenant breaches can often be seen as an early warning sign of financial distress, nonpayment of loan liabilities. If a company fails to pay the interest or principal due on a loan facility on the date that payment is due, an event of default occurs. And as previously mentioned, the lender can demand full repayment of its outstanding loans.

Cross default. Cross default provisions trigger default on a certain loan facility if the borrower defaults on another obligation from a different lender. For example, if a borrower defaults on its unsecured bonds, it'll also trigger a default in its secured loans if they'll cross default provisions in the loan agreement for the secured loans.