medium · Private Credit underwriting-credit-analysis
How does the 'Debt Yield' metric differ from coverage ratios in its approach to credit risk?
- Coverage ratios are only ever applied to distressed borrowers, while Debt Yield applies to healthy ones too.
- Debt Yield substitutes Net Income for EBITDA in its numerator, producing a far more conservative and cautious reading.
- Debt Yield is independent of interest rates, focusing only on the relationship between earnings and total debt quantum.
- Debt Yield folds the current market value of the sponsor's equity contribution into its denominator alongside outstanding debt.
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