What goes into a covenant compliance certificate?
Usually the covenant calculations for the period, such as leverage, interest or fixed charge cover and minimum liquidity, the figures behind them, a statement that no default has occurred, and an officer's signature. Your credit agreement defines every term, so the certificate follows its definitions, not your management accounts.
This is general information, not legal advice. Your credit agreement and your lawyer have the final word on what your certificate needs.
How is covenant EBITDA different from reported EBITDA?
Covenant EBITDA follows the credit agreement's definition. It often adds back items such as one-off costs, non-cash charges or pro forma earnings from acquisitions, sometimes with caps. Reported EBITDA follows your accounting. The gap between the two is where most lender questions start, so every add-back needs a clear, repeatable basis.
How often do lenders require covenant reporting?
It depends on the agreement. Quarterly covenant tests with a compliance certificate are common, often alongside monthly or quarterly financial statements and annual audited accounts. Asset-based lenders may want borrowing base reporting monthly or more often. The reporting section of your credit agreement is the only reliable answer.
How do you forecast covenant headroom before the test date?
Run the covenant calculation on your forecast, not just your actuals. When the forecast sits in the same model, with the same definitions and add-backs as the certificate, headroom for the next test dates is a report rather than a project. That gives you time to act, or to talk to the lender early.
What happens if you breach a covenant?
It depends on the agreement. A breach can be an event of default, which may let the lender charge fees, reprice, demand repayment, or require a waiver or amendment. Lenders generally respond better to early notice with a clear explanation and a plan than to a surprise on the certificate. Take legal advice on your specific facts.
What is in a monthly lender reporting package?
Typically the monthly income statement, balance sheet and cash flow, a comparison to budget or forecast, the operating metrics the lender asked for, and sometimes aged receivables and payables or a borrowing base. What matters most is consistency: the same numbers, the same definitions and the same format, every single month.
