Financial Covenant
Short definition
A financial covenant is a numerical test: DSCR, net debt/EBITDA, ICR, minimum cash, a net-worth floor. The calc is in the contract; a GAAP line does not bind automatically.
Detailed explanation
Numerator and denominator are locked: which EBITDA, which net debt, which FX, LTM versus period. Equity cure is a right to inject equity to fix a miss; not every pack has it.
A quarterly test catches earlier than an annual average. A holiday (construction) delays the first test date.
Why it matters for the CFO
Budget and forecast must fit the test. A miss goes to waiver or dividend lock-up.
How to read it
Headroom = actual − cap (or floor − actual). It is in ratio units, not TL.
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Definitions are educational. They are not investment, credit or tax advice.