medium · Corporate Credit Analysis
A borrower's 'Covenant EBITDA' allows for add-backs related to 'integration and other costs' with no dollar cap.
If the borrower uses this to add back 15 million in 'marketing expenses' for a new product launch, how should an analyst respond?
- Reclassify the marketing costs as 'Maintenance Capex'
- Add the $15 million to 'Total Debt' as a contingent liability
- Accept the add-back since the 'No Cap' provision permits any management-defined cost
- Subtract the marketing costs as they are a discretionary operating expense, not a non-recurring integration cost
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