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Debt Covenant Headroom CalculatorEBITDA Cushion and Debt Capacity

Is the practice earning what it should for the hours it spends?

Leverage and coverage against covenant limits, the EBITDA decline before a breach and the extra debt the leverage limit allows.

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Your figures
Example figuresIllustrative only. Type over them with your own.
EBITDA decline before a breach
$3,000,000
Room before the tighter covenant fails
EBITDA cushion
25.00%
Leverage
3.00
Drawn to one scale
EBITDA decline before a breach$3,000,000
Additional debt allowed by leverage test$12,000,000
All results
MeasureResult
EBITDA decline before a breach$3,000,000
EBITDA cushion25.00%
Leverage3.00
Interest coverage5.00
Additional debt allowed by leverage test$12,000,000
Binding covenantLeverage
How this was worked out
Work shownrecomputed as you type
EBITDA needed = max(debt / maximum leverage, interest x minimum coverage)
Headroom = EBITDA - EBITDA needed
Debt capacity = EBITDA x maximum leverage - debt

Illustrative arithmetic on the figures you enter. Check the result against your firm's methodology before relying on it.

The formulas

  • EBITDA needed = max(debt / maximum leverage, interest x minimum coverage)
  • Headroom = EBITDA - EBITDA needed
  • Debt capacity = EBITDA x maximum leverage - debt

How it works

Covenant definitions of EBITDA, debt and interest come from the credit agreement and can differ from GAAP amounts through add-backs and exclusions. Use the agreement's definitions in each field.

Thin headroom at a forecast test date bears on debt classification under ASC 470-10 and on the going concern evaluation under ASC 205-40, since a breach can make debt callable.

Illustrative figures only. Check the result against your firm's methodology before relying on it.

Common questions

Should I use forecast EBITDA?

For a forward test date, yes: the covenant is measured on the trailing period ending at that date.

What if a waiver was obtained?

ASC 470-10-45-11 addresses when a waiver lets debt stay noncurrent after a violation.

Does an equity cure change this?

Only if the credit agreement has an equity cure clause. Then add the contribution to EBITDA as that clause specifies.

Sources

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

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