1. 13 Covenant violations happen frequently. For example, Chodorow-Reich and Falato (2022) show that approximately 6.5% of US loans enter technical default by breaching a covenant in any given quarter. Sufi (2009) show that 35% of firms experienced violation of a credit line covenant in their sample. Moreover, covenant violations can affect many aspects of borrowers, including firm investment;; Roberts;hiring policies (Benmelech, Bergman, and Seru (2021) and Falato and Liang,1976
2. Bank lines of credit as contingent liquidity: Covenant violations and their implications;Acharya Reference;Journal of Financial Intermediation,2020