hard · Private Credit & Debt underwriting-credit-analysis
A borrower proposes adding back $1.2 million in 'Extraordinary supply chain disruption losses'. As a Director of Credit, you note that similar disruptions occurred in three of the last five years.
How should this be treated in a conservative 'Cash EBITDA' bridge?
- Reject the add-back because the frequency indicates these are recurring operational costs.
- Accept the add-back as supply chain issues are exogenous to the business model.
- Capitalize the $1.2 million as an intangible asset to be amortized over five years.
- Accept the add-back but increase the interest margin by 50 bps to compensate for the risk.
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