What is a typical context signaling a liquidity event for a company?

A liquidity event for a company typically arises from situations where the organization finds itself in a position of financial distress or an immediate need for cash. Violating a bank debt covenant often indicates that a company is facing difficulties in meeting its financial obligations, which can trigger a need for additional liquidity. When covenants are violated, lenders may require immediate repayment or renegotiation of terms, prompting the company to explore options such as securing new financing, restructuring debt, or selling assets to ensure it can meet its obligations and maintain operations.

In contrast, the other options, such as strong cash reserves, surplus equity, and consistent profitability, generally reflect financial health and stability instead of signaling a need for liquidity. These factors suggest that the company is in a favorable position and likely does not require immediate liquidity solutions.