Covenant Breach

A contractual clause that limits a party's ability to engage in specified activities, typically restricting competition, solicitation of clients or employees, or use of confidential information after the termination of an employment or business relationship. Restrictive covenants are common in M&A transactions and executive employment agreements, and their enforceability varies significantly across jurisdictions.

A security interest that becomes effective only upon the occurrence of a specified trigger event, such as a covenant breach, a decline in borrower creditworthiness, or the drawing down of a revolving credit facility beyond a certain threshold. Springing liens provide lenders with additional collateral protection when needed while allowing borrowers to operate without encumbered assets during normal business conditions.

The ratio of earnings before interest and taxes (EBIT) to interest expense, measuring a company's ability to meet its interest obligations from operating profits. A higher ratio indicates greater financial headroom and lower default risk.

Debt that holds the highest priority claim on specified collateral in the event of default or liquidation, ranking ahead of unsecured and subordinated obligations. Senior secured lenders benefit from security interests over identified assets such as property, equipment, receivables, or intellectual property.

An international regulatory framework developed by the Basel Committee on Banking Supervision that sets minimum capital requirements, leverage ratios, and liquidity standards for banks. Basel III was introduced in response to the 2008 financial crisis and requires banks to hold higher-quality capital (primarily Common Equity Tier 1) against risk-weighted assets, including operational risk and market risk.

Debt that ranks below senior obligations in priority of repayment in the event of the borrower's liquidation or default. Subordinated debt holders are repaid only after senior secured and senior unsecured creditors have been satisfied in full.

A negative pledge is a lending covenant under which a borrower promises not to grant new security over specified assets, or over any assets, without the lender's consent. In IP-backed lending, a negative pledge covenant is the instrument that protects a lender's collateral position after the loan is advanced.

A specialist insurance product used in M&A transactions that covers the buyer against financial losses arising from breaches of the seller's warranties and representations in the sale and purchase agreement. W&I insurance has become standard in European PE transactions, enabling cleaner exits (as the seller's liability is capped or eliminated), facilitating auction processes, and allowing PE funds to distribute sale proceeds to LPs without retaining escrow reserves.

How can an accountant help a client access IP finance?

An accountant readies the client for IP finance by proving clean title, commissioning an independent IP audit and valuation, and assembling the historical and forecast financials lenders need to underwrite the loan.

Why does revenue attributable to IP matter to a lender?

Because a lender serves the loan from cash flow first and collateral only as a fallback, so IP that demonstrably earns revenue or royalties is far stronger security than a patent that generates nothing.

What is the NatWest High Growth IP Loan?

The NatWest High Growth IP Loan lends from £250k up to 50% of the IP value in an independent Inngot valuation, revalued annually, to high-growth businesses in England and Wales. NatWest launched it in January 2024.