Negotiating Credit AGreements with lendersSubscribe
In this covenant - lite era, what types of covenants are you guys seeing? Can u share some actuaal metrics. Both for upper and lower middle.
There are a few types of liquidity coverage (EBIT / Interest Coverage, EBITDA / Interest, EBITDA –Capex – Taxes / Interest). that can be set. Given the covenant-lite era, you can probably only pick one of these. How do you determine which type of liquidity ratio to lobby for as a PE sponsor? Are lenders willing to be flexible so long as any liquidity coverage is included in the indenture?
Another common covenant is Debt / EBITDA. It’s also common to have some covenant cushions. Have you seen instances where sponsor makes/asks for calculations such that an EBITDA reduction implicitly increases debt? So say total debt is 100 and EBITDA is 50, debt / EBITDA is 2.0x. But because EBITDA is allowed to fall by 20%, that means the leverage should also be 20% greater and the covenant should be placed at 120 / 40 (3x) as opposed to (100 / 40 = 2.5). Does this happen?