Finance Deals & Syndicated Lending · glossary
The gap between a financial ratio and its limit. It shows how far earnings could fall before a covenant test fails. Chapter 9
Explained in Chapter 9, Undertakings and Financial Covenants, of Finance Deals & Syndicated Lending.
The gap between the actual ratio and the limit is the headroom. Here, earnings could fall to €12m before Interest Cover reached four, and to €10m before Leverage reached three. Lenders like covenants set this way: tight enough to catch a real decline, loose enough to survive one bad quarter. The words “does not exceed” matter too, because Leverage of exactly three times still passes.Read Chapter 9, Undertakings and Financial Covenants →
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