Debunking Common Covenant Myths #4 –Finding EBITDA Add-Backs
The fourth in our series of common covenant myths is that EBITDA add-backs are only found in the definition of “Consolidated EBITDA”, and nowhere else in the offering memorandum or senior facilities agreement.
This is definitely not true!
EBITDA add-backs can be found in the definition of “Consolidated EBITDA” – that’s correct. But these critical provisions can also be found in the following additional places:
- The Financial Calculations covenant (sometimes referred to as “Certain Compliance Calculations”)
- In the definition of “Pro Forma Adjusted EBITDA” or similar (check the soft caps in the baskets to determine which defined term you’re looking for)
- In the definition of the “Fixed Charge Coverage Ratio” (which is the source definition cross-referred into the definitions of the leverage ratios)
You should also check whether the same add-backs and adjustments applied in the calculation made to get to marketing EBITDA can be made going forward – in most of the modern vintage of deals, this is almost certainly the case!
FLT students learn all of the nooks and crannies where EBITDA adjustments might be buried in our Calculation Mechanics module, and in the module on Debt & Liens. We also cover it in our Calculating Covenant Capacity module, with reference to a case-study.
To find out more about our first-of-its-kind online training platform for covenants, get in touch for a demo or to access our taster course.
by Sabrina Fox