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Reorg Radio
Covenants: The Fiction and Challenges of EBITDA Add-Backs (May 26, 2020)
May 26, 2020
20:14
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Exploring EBITDA add-back challenges in a declining credit market, impact of 'fictional' numbers on investors, Covid-19 EBITDA adjustments, market information asymmetries creating disparities.
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Quick takeaways
- Adjusted EBITDA post-COVID may mislead investors on company profitability.
- Loose covenants can hide risks in favorable markets but surprise investors during downturns.
Deep dives
Challenges of EBITDA Adjustments
EBITDA adjustments in debt documents, especially those related to COVID-19 impacts, raise concerns. These adjusted figures might not truly reflect a company's profitability. Investors relying on adjusted EBITDA for free cash flow estimation may encounter significant discrepancies, leading to misguided perceptions of a company's financial health and borrowing capacity.
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