Loan stress test
Change the loan size or operating assumptions. Start with the distributor’s Year 1 downside. All inputs are in USD millions.
Year 1 results
Enter a value within the range for each input.
- Cash for debt service
- $1.80m
- Cash conversion
- 60.0%
- Debt service coverage
- 0.750× · Below screen
- Year-end leverage
- 3.600× · Above covenant
- Covenant headroom
- -0.100×
Separate default scenario
The borrower defaults just before the first principal payment. Net sale proceeds are $6.3m after costs. Assume the first lien receives all proceeds up to the principal claim.
Principal recovery 52.50% · $5.70m principal loss
How it works
Cash for debt service is EBITDA less cash taxes, maintenance capex and the increase in working capital. Cash conversion is that cash divided by EBITDA.
Coverage divides cash for debt service by interest plus scheduled principal. The fictional loan uses 10% interest on opening debt and 10% annual principal. The exercise requires at least 1.10× coverage.
The agreement tests actual gross debt after scheduled principal against full-year EBITDA at the first fiscal year-end. Above 3.50× breaches. This projection assumes principal is paid. Headroom is the limit less projected leverage.
Practice the term loan case