medium · Debt Capital Markets credit-ratings-risk
A company has a 'Fixed Charge Coverage Ratio' (FCCR) incurrence test of 2.0×.
If EBITDA is $200 million and total 'Fixed Charges' (interest plus preferred dividends) are $110 million, can the company incur additional debt that adds $10 million in annual interest?
- Yes, because the company still generates positive Net Income after the interest expense.
- No, because the pro forma FCCR would be 1.67×, which is below the 2.0× requirement.
- Yes, because the current FCCR is 1.82×.
- No, because EBITDA must be at least 3.0× the total debt amount.
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