Interest coverage test

Interest coverage test

A debt limitation that prohibits the issuance of additional long-term debt if the issuer's interest coverage would, as a result of the issue, fall below some specified minimum.

Interest Coverage Test

A rule that some companies have forbidding them from issuing more long-term debt securities if doing so would drive their interest coverage ratio below some, defined ratio. See also: Debt limitation.
References in periodicals archive ?
It will rank on par with Walt Disney's existing debt, be subject to an interest coverage test of 3x and contain no ongoing material adverse change clause, the agency noted.
For the purpose of the interest coverage test, zero-coupon securities are excluded from the calculation of interest coverage because the security is not generating a predictable stream of interest in cash.
For the purpose of the interest coverage test, the interest due on PIK securities is excluded from the interest coverage test once a payment of interest has been deferred.
As a result, zero-coupon securities must be treated for the purpose of the interest coverage tests and the par value tests, as follows:
The entity fails a debt-equity or interest coverage test.