This chapter explores the adjustments of financial metrics such as EBITDA in response to the COVID-19 pandemic, analyzing the impact of temporary versus permanent cost changes on financial covenants. It discusses the complexities surrounding covenant management, transparency in reporting, and the unique challenges investors face in assessing credit quality during market stress. Additionally, the chapter considers future covenant structures and the balance needed between corporate viability and investment integrity.
The Covenants by Reorg team speaks to Muzinich & Co’s Senan Kiran about the multiple factors driving covenant pushback, of which the credit story is just one; the use if flexibility in documents: Caveat Emptor - know your documents; and IFRS 16, calculating covenant capacities and campaigning to increase transparency.
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