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.
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The Corporation has requested a forbearance for the three months ended March 31, 2017 on the funded debt to EBITDA ratio and the debt service coverage ratio covenants from HSBC Bank Canada.
According to the company, since December 2016, it has had a deferment of amortisation and fulfilment of key ratio covenants under a so-called standstill agreement.
Although North American Palladium produced approximately 45,600 payable oz of palladium in the first quarter of 2015, covenant relief was required as a result of a decline in palladium prices, weakening of the Canadian dollar, and lower production volumes combined with higher expenses in March, which impacted the minimum shareholders' equity and leverage ratio covenants.
Demerjian (2007) studied the choice of financial ratio covenants in debt agreements and found that borrowers with positive earnings, high profitability and low volatility earnings are likely to include covenants in debt agreements related to earnings, such as coverage of the debt to cash flow.
The amendment will lower annual commitment fees by approximately USD 500,000 and modify certain financial and leverage ratio covenants, according to Ferro.
Last October, Freedom disclosed it was not in compliance with debt-to-revenue ratio covenants of its loan agreement.
Consider including net-worth and financial ratio covenants in the lease documents.
Other restrictive covenants to be aware of are maximum leverage ratio covenants.
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.
For example, loan-to-valuation ratio covenants that give lenders the power to call a default when the value of secured property falls, even where a small business customer has met financial repayments, will be removed.