medium · Debt Capital Markets credit-ratings-risk
A 4.5x maintenance covenant is tested quarterly. At Q1, EBITDA is $100 million and debt is $440 million.
If Q2 EBITDA drops to $95 million and debt remains flat, what is the status?
- Technical default, as leverage is 4.63x.
- Technical default, because any drop in EBITDA requires an immediate waiver.
- Compliant, because a 5 million drop is within the standard 10% basket.
- Compliant, as leverage is 4.40x.
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