Businesses with loans will often have covenants that are triggered by EBITDA multiples, liquidity ratios or other margin related triggers. COVID-19 looks like it has triggered a new measure called EBITDAC (traditional EBITDA + COVID-19).
EBITDAC includes a measure of revenue impact caused by COVID-19. Why would a lender agree to this measure replacing the loan covenant triggers in place pre-COVID-19?
A lender will not want to run a distressed business or trigger damaging business initiatives including restructures or liability reducing measures like forcing employees on leave to run down leave liabilities. Both initiatives are unlikely to see a full loan recovery.
We’re in interesting times! We’ve seen Qantas restructuring and other business reconfiguring to deal with the COVID revenue hit. Other businesses are pivoting to new markets or goods. Think gin distilleries making hand sanitiser.
What have you seen businesses do to avoid restructuring and reconfiguration programs?
Do you think Australian businesses are really headed for the September Cliff that will trigger M&A, divestment and restructures?
Listen here for a quick explanation of EBITDAC and liar loans: https://bit.ly/EBITDAC