In many cases, banks may require a waiver fee in the range of 0.1% to 0.5% of the loan amount when issuing a written waiver — depending on severity and relationship maturity. Beyond that fee, breaches often trigger increased interest, advisory costs, and restrictions that limit strategic options. The hidden price is lost optionality.
The direct cost of a breach is typically visible in three line items: waiver fees, increased interest, and advisory expenses. The indirect cost shows up in lost flexibility, management time, and weakened negotiating power.
Direct Costs
Waiver Fee
When a bank issues a written waiver, they often charge a fee. In one illustrative scenario, a waiver fee of 0.25% on a loan of DKK 40 million would amount to DKK 100,000.
Increased Interest
Some loan agreements allow the bank to raise the interest rate upon breach. The increase might be 1–3 percentage points, applied either permanently (adjusted margin) or temporarily until the condition is cured.
Example: An increase of 2 percentage points on a DKK 40 million loan equals DKK 800,000 per year, or approximately DKK 67,000 per month while the breach persists.
Legal and Advisory Costs
Negotiating a waiver, amendment agreement, or restructuring typically requires external support:
- Legal counsel: DKK 50,000–150,000
- Financial advisor (interim CFO, turnaround specialist): DKK 50,000–200,000
- Internal time (CFO, CEO, board): often underestimated — but easily 100+ hours
Illustrative total: For a DKK 40 million loan, direct costs in one scenario could range between DKK 200,000 and DKK 600,000 for a standard covenant breach, depending on complexity and required external support.
Indirect Costs
Lost Flexibility
The bank may prohibit dividends, acquisitions, and major investments. This locks up capital and limits strategic options. Difficult to quantify — but real.
Management Time Loss
The CFO and CEO spend hours each week on negotiation, reporting, and internal communication. That time is not spent on operations, sales, or product development.
Weakened Negotiating Position
Next time you need to negotiate financing — a new facility, refinancing, or growth capital — the breach is part of the history. It affects pricing, covenants, and collateral requirements.
Impact on Company Valuation
In M&A due diligence, covenant history is examined. A breach is not a deal-breaker, but it often affects valuation and can give the buyer more negotiating power.
The Hidden Cost: Lost Optionality
The biggest loss is often what doesn't happen. A company in covenant breach typically cannot:
- Strike when the right acquisition appears
- Raise growth capital on attractive terms
- Buy back own shares when the price is attractive
- Respond quickly to market changes
This is the real price of covenant breach: lost optionality. It doesn't cost money directly — but it costs opportunities.