Analyzing Covenant Packages

When To Use

• Reviewing a credit agreement or term sheet to assess borrower flexibility and lender protections
• Comparing covenant packages across competing deal proposals or precedent transactions
• Calculating headroom on maintenance covenants against projected financials
• Evaluating a covenant-lite structure versus a traditional maintenance-covenant package
• Advising on covenant negotiation strategy for new issuances, amendments, or refinancings

Inputs To Gather

• Credit agreement or term sheet — full covenant section including definitions
• Financial model or projections — at minimum: revenue, EBITDA, total debt, capex, interest expense, and cash flow forecasts over the covenant testing horizon
• Borrower's historical financials — trailing 4–8 quarters of actuals for trend context
• Precedent deal comps — covenant packages from comparable credits (same sector, rating, leverage profile)
• EBITDA definition details — addbacks schedule, pro forma adjustment language, run-rate cost savings caps
• Basket and builder schedules — restricted payments, permitted investments, permitted debt capacity

Workflow