easy · Private Equity & LBOs

When calculating Interest Coverage (Adjusted EBITDA / Interest Expense) for a debt covenant, how is OID amortization usually treated?

1. It is added to EBITDA instead of Interest Expense.
2. It is typically excluded, as covenants often focus on 'Cash Interest Expense'.
3. It is always included to make the covenant more restrictive.
4. It is used to reduce the numerator of the ratio.

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