Enter each covenant in your facility letter with the test type and limit, then either the actual ratio or the figures to work it out from. The tool shows which are met, which are breached and which are close, and how far each ratio would have to move to cross the limit.
Test is Minimum when the ratio must stay at or above the limit and Maximum when it must stay at or below. Leave Actual blank to work it out as Numerator divided by Denominator.
Use the limits and definitions in your own loan agreement. Covenant definitions differ between lenders and may adjust the reported figures, so confirm each calculation basis. Rules for classifying debt on a breach depend on the current standards.
| Covenant | Test | Limit | Actual | Headroom % | Status |
|---|---|---|---|---|---|
| Debt service coverage | Minimum | 1.25 | 1.33 | 6.7 | Near breach |
| Net debt to EBITDA | Maximum | 3.50 | 3.20 | 8.6 | Near breach |
| Current ratio | Minimum | 1.20 | 1.15 | -4.2 | Breach |
| Interest cover | Minimum | 2.50 | 2.82 | 12.7 | Compliant |
| Debt to equity | Maximum | 2.00 | 1.40 | 30.0 | Compliant |
Headroom is the distance to the limit as a percentage of the limit. A negative figure means the limit is crossed.
Lenders write limits on ratios such as cover and leverage into the loan agreement. If a limit is crossed at the test date the lender may be able to ask for early repayment, which can affect how the loan is classified and whether there is a going concern question. Testing every covenant at each date, and looking at the headroom, shows the problem before the lender does.
For a Minimum covenant the actual ratio must be at or above the limit. For a Maximum covenant it must be at or below. The distance to the limit is worked out in the right direction for each.
Headroom is that distance as a percentage of the limit. A negative distance is a breach. Headroom below the percentage you set is marked as near breach.
If you leave Actual blank, the tool divides Numerator by Denominator. Covenants with missing or unclear inputs are listed as not testable.
A facility requires a current ratio of at least 1.20. The entity reports 1.15.
