Adjusted EBITDA
Private Credit glossary · Underwriting & Credit Analysis
Definition
EBITDA as defined in the loan agreement, including negotiated add-backs for one-time, non-recurring, or non-cash items. Standard add-backs include restructuring/severance, transaction costs, stock-based comp, and certain pro forma cost synergies; experienced lenders typically apply a 50–75% haircut to projected synergies and impose a cap on synergy add-backs (often 25% of unadjusted EBITDA) to prevent inflation of the leverage denominator.
Adjusted EBITDA in plain English
EBITDA is a rough measure of a company's core earnings, and "Adjusted" EBITDA lets the company add back certain costs it argues aren't part of normal operations — like a one-time office move, layoffs, or non-cash stuff like paying employees in stock. The catch: companies love to inflate this number, especially by claiming big future "synergies" (savings they PROMISE will happen after a merger), because a bigger earnings number makes their debt look smaller by comparison. Smart lenders push back — they'll only count maybe half to three-quarters of those promised savings and cap the total add-backs (often at 25% of the raw number) so the borrower can't just paper over how much it really owes.
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