Ratio Covenant

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Ratio Covenant

Any covenant in a loan agreement that uses a financial ratio. For example, a ratio covenant may prohibit more than a certain amount of leverage and may use a gearing ratio to determine this.
References in periodicals archive ?
Consider including net-worth and financial ratio covenants in the lease documents.
The waiver of compliance covers interest coverage ratio and leverage ratio covenants.
But when sales growth hit a slump, the company last year breached some of the ratio covenants of a private-placement term loan of $50-million, and as a result the loan terms were renegotiated.
The Company also announced that its $42 million revolving credit agreement ("Short-Term Credit Facility") was amended primarily to extend the expiration date to March 31, 2015, increase the borrowing amount available to $45 million, remove the financial ratio covenants, increase the amount that may be used for letters of credit to $25 million, and require minimum liquidity of $15 million in unrestricted cash or Short-Term Financing Program borrowing availability.
Subject to the Company's compliance with certain terms, conditions and milestones as set forth in the Waiver, the Lenders have agreed to waive until June 30, 2014, any potential events of default related to, among other things, non-compliance by the Company with the leverage ratio or minimum interest coverage ratio covenants set forth in the Credit Agreement.
In addition, CEDC also revealed that its Polish lenders have waived a breach of consolidated coverage ratio and net leverage ratio covenants for the period ending December 31, and has amended the ratios for the period ending March 31, 2011.
More specifically, the Company has obtained waivers and Commerzbank has agreed to the relaxation of several financial and security coverage ratio covenants, and to the deferral of a portion of its scheduled quarterly installments.
In addition, the Company expects that, as of December 31, 2009, it remained in compliance with the leverage ratio and coverage ratio covenants set forth in its existing credit facility, with such ratios comparable to those as of September 30, 2009.
Chris Biedermann, CFO, commented, "Following our strong cash flow generation during the first quarter of 2011, resulting in a cash balance of over $168 million at quarter end, and still having our Polish overdraft facility not utilized, we felt that the best use of our cash was to simply pay off the term facility and fully eliminate all financial ratio covenants associated with the credit facility.
With respect to the Company's $34 million term loan facility, Boss Tankers Ltd, a wholly-owned subsidiary, was in breach of the EBITDA/Fixed Charges ratio and the Minimum Value Ratio covenants at June 30, 2009.
Financial covenants remain the same as in the previous credit facility, including minimum consolidated net worth and maximum indebtedness to capitalization ratio covenants.