Worked Walkthrough: Build a Covenant Headroom Bridge
Build a covenant headroom bridge that separates starting position, driver movement, and downside trigger.
Net debt is $142 million. Covenant EBITDA is $38.2 million. The leverage covenant maximum is 4.00x. Management needs to know how much true headroom exists. Leverage covenant ratio = net debt / covenant EBITDA; headroom bridge = current ratio, covenant limit, and driver sensitivity. The common trap is saying 'we pass' without explaining whether headroom is durable or built on items that could disappear before the test. Calculate current ratio $142.0 million net debt / $38.2 million covenant EBITDA = 3.72x. The starting point passes the 4.00x limit, but passing alone does not show which assumptions are protecting the cushion.…
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