Covenant headroom
- EBITDA GBP 35,720,000 · Net debt GBP 100,000,000 · Headroom GBP 7,160,000 · Leverage 3 times.
Executive Intelligence · Capital Allocation and Investments
Funding and Liquidity Planning
Cash availability and funding need over a horizon from verified balances and obligations.
Demonstration: Wexcombe Retail Group (fictional) · Retail. Fictional data and a scripted answer.
The situation
- Organisation
- Wexcombe Retail Group (fictional)
- Who is asking
- Group treasurer
- Industry
- Retail
- What happened
- The group is planning to refinance a loan due in eighteen months, and the treasurer wants to know how much headroom it has against its covenants.
The question asked
Does our plan leave enough headroom against the borrowing covenants over the next year, and what would eat it?
What it reads, and who can see the result
- Forecast and covenant terms documentPlanned profit, debt and the covenants.
- Reads
- The forecast summary and the covenant terms.
- Does not read
- Bank correspondence or other facilities.
- Permission
- Treasury access.
- Who sees it
- The treasurer, the CFO and the audit committee.
Try it
Change the assumptions. Every result and the answer below are recomputed from them, and a warning appears when a result crosses a stated limit.
- EBITDA
- GBP 35,720,000Base 38,000,000; every 1% of sales moves it by 760,000.
- Net debt with the extra spend
- GBP 100,000,000
- Net debt to EBITDA (times)
- 3
- Headroom under the covenant of 3.0 times
- GBP 7,160,000
The answer
Simulated answer. Written for this fictional case, not produced by a live model. Only the figures in it are computed, from what you decided above.
On these assumptions EBITDA is GBP 35,720,000 and net debt GBP 100,000,000; headroom against the covenant is GBP 7,160,000.
Sales change moves EBITDA through the margin on each point [S1]; extra spend adds to debt. Together they set how far the group is from the 3.0 times limit [S2]. The ratio is shown to the nearest whole number here; the covenant test uses the agreement's precise definition.
A falling-sales scenario with an unavoidable spend programme is the combination that breaches, and the treasurer should know it before the lender asks. The conversation to have early is about the definition, the cure rights and a waiver, not about hoping.
Relies on: S1 · Forecast, next twelve monthsS2 · Facility agreement, financial covenants
No approval is needed for this result: it is read-only insight, and nothing consequential happens because of it.
What it produces
For the treasurer
- Open the covenant conversation while there is headroom, not after it has gone.
Limits of this example
- Simplified: the covenant's exact definition governs.
- A straight-line sensitivity of EBITDA to sales.
- This is a scripted demonstration on fictional data. No model was called and no real organisation, person or result is shown.
More in Executive Intelligence
- Enterprise Health MonitorOne view of whether the organisation's governed functions are healthy, built only from verified source readings.
- Executive Priority EngineRanks what needs executive attention across modules by stated, inspectable rules (overdue, severity, deadline, owner).
- Cross-Functional IntelligenceShows how an item in one function relates to items in others, using only links that are recorded (a finding to its obligation, a handover to its training).
- Business Performance NarrativeA plain-language summary of verified readings for a period.
- Strategic Planning AdvisorA planning workspace for objectives, assumptions, initiatives, owners and review dates, as recorded by people.
- Market Expansion IntelligenceCompares candidate markets or jurisdictions using verified, dated external data and the organisation's own compliance footprint.
- Competitive IntelligenceRecords competitor facts that a person enters with a source and a date, plus approved public-source feeds.
- Growth Opportunity DiscoverySurfaces opportunities from the organisation's own verified data (for example repeat findings, unused capability, unserved locations) as hypotheses for a person to accep…
The Executive Intelligence story · This capability in the full register