CM-004
Scenario
This case tests correct handling of a covenant waiver embedded in an amendment notice. The Delta Amendment Notice grants a one-period waiver of the Leverage Ratio financial covenant — instead of the original ≤ 4.0× threshold, the borrower is permitted a one-time elevated ratio of ≤ 5.5× for the Q1 2026 testing period only. The underlying covenant survives: it reverts to ≤ 4.0× for Q2 2026 and all subsequent periods. This case tests: (1) identification of the waiver, (2) extraction of both the original and waived thresholds, (3) explicit identification of the scope (one testing period), and (4) a mandatory flag that the modification is temporary and the underlying covenant is unchanged after the waiver period. Treating the waiver as a permanent amendment is a Fail.
Input
Document: delta-amendment-notice.pdf
Task: Identify any covenant waivers or temporary modifications in this amendment notice. For each waiver, extract: covenant name, original threshold, waived threshold, waiver period, and the surviving (post-waiver) covenant terms. Explicitly flag whether any waiver is temporary or permanent.
Expected Output
Waiver Identified: Leverage Ratio — Q1 2026 Testing Period
| Attribute | Value |
|---|---|
| Covenant | Leverage Ratio (Clause 23.1(a) of the Delta Industries Ltd. Facility Agreement dated 12 March 2023) |
| Covenant Type | Financial |
| Original Threshold | ≤ 4.0× (Net Debt / EBITDA) — as stated in the original Facility Agreement |
| Waived Threshold (Q1 2026 only) | ≤ 5.5× (Net Debt / EBITDA) |
| Waiver Scope | Q1 2026 testing date only (31 March 2026 testing date) |
| Waiver Nature | Temporary — the waiver applies to a single testing period. The original threshold of ≤ 4.0× applies to all subsequent testing dates commencing 30 June 2026. |
| Conditions on Waiver | Borrower must deliver written confirmation of the reasons for the temporary headroom request within 5 business days of the date of this Amendment Notice. |
| Post-Waiver Covenant | Leverage Ratio ≤ 4.0× — resumes from Q2 2026 testing date (30 June 2026) onward |
System flag required (mandatory):
WAIVER DETECTED — TEMPORARY: This waiver applies to Q1 2026 (31 March 2026) only. The covenant threshold reverts to ≤ 4.0× from 30 June 2026. This is NOT a permanent change to the covenant. Do not update the standing covenant threshold in downstream systems.
Ground Truth Citation
Waiver Grant
"The Lenders hereby agree to waive, with effect from the date of this Amendment Notice, the requirement under Clause 23.1(a) of the Facility Agreement that the Leverage Ratio as at 31 March 2026 shall not exceed 4.0 times, and agree that, solely in respect of the testing date of 31 March 2026, the maximum Leverage Ratio shall be 5.5 times."
Source: delta-amendment-notice.pdf, Page 4, Clause 5.1 (Covenant Waiver)
Temporary Nature of Waiver
"For the avoidance of doubt, the waiver granted pursuant to Clause 5.1 applies only to the testing date of 31 March 2026. With effect from 30 June 2026 and all subsequent testing dates, the Leverage Ratio covenant under Clause 23.1(a) of the Facility Agreement shall apply in full force and effect with the original threshold of 4.0 times."
Source: delta-amendment-notice.pdf, Page 4, Clause 5.2 (Scope of Waiver)
Condition on Waiver
"As a condition to the waiver granted under Clause 5.1, the Borrower shall deliver to the Facility Agent, within 5 Business Days of the date of this Amendment Notice, a written explanation of the circumstances giving rise to the Borrower's request for additional headroom."
Source: delta-amendment-notice.pdf, Page 5, Clause 5.3 (Waiver Conditions)
Scoring Criteria
| Condition | Score |
|---|---|
| Waiver identified; original threshold (4.0×) and waived threshold (5.5×) both captured; waiver period correctly stated as Q1 2026 (31 March 2026) only; temporary nature explicitly flagged; post-waiver reversion to 4.0× stated; waiver condition noted | 1.0 |
| Waiver identified; both thresholds correct; waiver period correct; temporary nature flagged but reversion date not stated | 0.80 |
| Waiver identified; waived threshold (5.5×) extracted but original threshold omitted | 0.60 |
| Waiver identified but characterised as a permanent amendment to the covenant (i.e., ongoing threshold stated as 5.5×) | 0.0 — critical scoring failure, operationally dangerous |
| Waiver not identified at all (document processed as a standard amendment without flagging the covenant waiver) | 0.0 |
| Any threshold value not present in source cited | 0.0 (case-level) |
Known Failure Modes
- Treating the waived threshold (5.5×) as a permanent update to the Leverage Ratio covenant — this is the highest-severity failure mode because it would propagate incorrect thresholds into downstream covenant monitoring systems.
- Extracting the waiver but not stating that it is temporary — omitting the post-waiver reversion language.
- Not identifying the waiver at all, processing the document only for its margin and maturity amendments (LO-002) and missing the covenant section.
- Correctly identifying the waiver but extracting the wrong testing date (e.g., "Q4 2025" or "December 2025" rather than "31 March 2026").
- Missing the condition on the waiver (5 business day notification requirement).
Regression Note
N/A — initial case