medium · Corporate Credit Analysis
An analyst notices that a borrower's 'Adjusted EBITDA' includes a $15 million add-back for 'startup losses' in a new geographic segment.
Why might this be considered a credit-negative adjustment?
- It forces the firm to pay higher cash taxes on the adjusted amount
- It automatically triggers a 'Ratings Watch Negative' from the agencies
- It masks the true cash burn of an unproven expansion strategy
- It reduces the amount of 'Incremental' debt the firm can legally issue
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