hard · Corporate Credit Analysis
An analyst is comparing two B2/B-rated companies. Company A has a 100% ECF sweep with no step-downs. Company B has no ECF sweep but has 10% annual mandatory amortization.
Over a 5-year period with flat EBITDA, which company is more likely to have a lower leverage ratio at the end of Year 5?
- It depends on the amount of ECF generated by Company A relative to the fixed amortization of Company B.
- Company A, because a 100% sweep is always more aggressive than 10% amortization.
- Company B, because amortization is a 'hard' requirement and a sweep is a 'soft' requirement.
- Company A, because sweeps are applied before amortization in the waterfall.
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