medium · Corporate Credit Analysis credit-metrics

What is 'Negative Operating Leverage' as it relates to credit risk?

1. A situation where a small decline in revenue leads to a disproportionately large decline in EBITDA due to high fixed costs.
2. A deliberate financial-policy strategy where a firm intentionally pays down excess debt in order to boost its credit rating over time.
3. The practice of using available free cash flow to pay down the revolver ahead of the scheduled term loan amortization.
4. When a company's annual accounting depreciation expense consistently exceeds its actual capital expenditure spending on new equipment.

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