hard · Debt Capital Markets primary-issuance-syndication
A portability provision defines 'Net Leverage' based on EBITDA for the most recent four quarters. However, the transaction occurs mid-quarter. The issuer's EBITDA was $50 million per quarter for the first three quarters, but the current quarter is projected at $70 million due to a new contract. Pro forma net debt is $1,050 million.
If the threshold is 5.0x, does the issuer pass portability using only the most recent completed quarters?
- No, leverage is 5.25x because the $70 million projected quarter cannot be used until the quarter is officially closed.
- Yes, leverage is 5.0x because the indenture expressly permits 'good faith' projections of the open current quarter.
- No, leverage is 21.0x because the numerator in portability tests is not annualized over a four-quarter period.
- Yes, leverage is 4.77x because the trailing four-quarter average, including the projection, works out to $55 million.
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