Covenant Testing

Jan 3, 2018 | Services

  • Interest cover – to ensure that interest and operating leases can be covered by operating profits before amortisation.
  • Minimum EBITDA (Earnings before interest tax depreciation and amortisation) – the ongoing ability to generate a minimum level of EBITDA
  • Occupancy levels – to ensure that occupancy levels do not fall to an unacceptable level Impacting on earnings, debt serviceability etc.
  • Debt servicing – testing the ability to generate adequate EBITDA or operational cashflow to cover debt obligations, both principal and interest
  • Members Capital – normally for LLPs to ensure a minimum level of permanent capital is maintained in the business
  • Maximum Gearing Covenant – to ensure an acceptable balance between interest bearing debt and capital/shareholders’ funds within the business
  • Dividends – restrict the borrower’s ability to make certain payments that may adversely affect the ability to repay borrowings.

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