medium · Corporate Credit Analysis credit-metrics
For a B+/B1 rated LBO, the 'Fixed Charge Coverage Ratio' (FCCR) is defined as (EBITDA - Capex - Cash Taxes) / (Interest + Mandatory Amortization). If EBITDA = $250m, Capex = $60m, Cash Taxes = $30m, Interest = $110m, and Mandatory Amortization = $20m, calculate the FCCR and interpret the result.
- FCCR = 0.90x; This signals an immediate liquidity shortfall now
- FCCR = 2.27x; The firm demonstrates very strong debt service coverage
- FCCR = 1.45x; The firm is comfortably covered with a meaningful cushion to spare
- FCCR = 1.23x; The firm has thin but positive cushion to meet fixed obligations
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