Calculator
Covenant headroom
The calculator tests a leverage covenant and a DSCR covenant on four dates. It gives the tolerated EBITDA fall, the debt headroom, the first date in breach and the equity cure that restores leverage.
Tightest margin
21.43%
Tolerated fall in year 1 on the DSCR covenant. Both covenants are met at each test date.
| Test date | Leverage | Tolerated EBITDA fall | Debt headroom | DSCR | Tolerated cash flow fall | Status |
|---|---|---|---|---|---|---|
| Year 1 | 3.50x | 22.22% | €20.0m | 1.40x | 21.43% | Met |
| Year 2 | 3.05x | 28.29% | €25.3m | 1.50x | 26.67% | Met |
| Year 3 | 2.64x | 34.09% | €30.0m | 1.60x | 31.25% | Met |
| Year 4 | 2.26x | 39.71% | €34.3m | 1.70x | 35.29% | Met |
The initial values are sample inputs to replace with your business plan and the terms of your credit agreement. This calculation gives an order of magnitude and commits no lender.
Method
The calculation formulas
The tolerated fall is the share of EBITDA, or of available cash flow, that the company can lose before reaching the covenant. The equity cure that restores the leverage covenant equals net debt less the product of the covenant and EBITDA.
Leverage
Leverage = net debt ÷ EBITDA
Tolerated EBITDA fall
Tolerated fall = 1 − net debt ÷ (leverage covenant × EBITDA)
DSCR
DSCR = available cash flow ÷ debt service
Example
Worked example
In year 1, the company carries €70.0m of net debt for €20.0m of EBITDA. Its leverage reaches 3.50x against a covenant of 4.50x. EBITDA can fall by 22.22% before the breach. Debt headroom comes to €20.0m. Available cash flow of €14.0m covers debt service 1.40x. It can fall by 21.43% before reaching the minimum DSCR of 1.10x. The figures of this example are sample inputs.
Benchmarks
Leverage of French companies held by a fund
| Indicator | At fund entry | At exit |
|---|---|---|
| Net debt / EBITDA | 3.6x | 2.7x |
| Valuation multiple (EV / EBITDA) | 8.8x | 12.1x |
Sample: 232 transactions, companies with €20m to €500m of revenue at exit, average holding period of 5.1 years.
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