Debt Yield
Private Credit glossary · Documentation, Covenants & Terms
Definition
Lender-friendly cash-flow ratio: Debt Yield = EBITDA / Total Debt (or NOI / Total Debt in real estate). The inverse of the leverage ratio, expressed as a yield: a 20% debt yield means EBITDA equals 20% of total debt (i.e., 5× leverage). Preferred by underwriters because it is harder to manipulate than leverage — it does not depend on EBITDA add-backs being applied to both numerator and denominator, and in real estate it does not depend on a (potentially inflated) appraisal. Typical target: ≥ 15% for senior middle-market.
Debt Yield in plain English
Debt yield flips the usual 'how much debt' question into a 'how much cash for each dollar of debt' question. It's simply a company's annual earnings divided by its total debt, written as a percent — so a 20% debt yield means the company earns 20 cents of profit for every dollar it owes (equivalent to owing 5 times its earnings). Lenders love it because it's hard to game: unlike the usual leverage ratio, it doesn't let borrowers pump up 'adjusted earnings' on both sides of the fraction, and in real estate it doesn't lean on a rosy property appraisal. Think of it as asking 'if I only had the building's actual income, how fast would it cover the loan?' — a reality check that ignores wishful valuations. Underwriters typically want at least 15% on senior middle-market loans.
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