The Debt Load

What this pack runs.

A board judges a debt load by net debt over reported earnings against a level everybody feels comfortable with, and calls the difference a turn of room. The lender tests something else: net debt as the credit agreement defines it, over earnings as the agreement defines them, at a level that usually steps down, on a stated quarter. The two numbers can agree for years and part company in one quarter, and the room is reasoning about the one the lender never tests. This pack turns the ratio into a distance and a date. Net debt after the decision, divided by the level the covenant permits on each of ten test dates, against covenant earnings on the plan's path, gives how far earnings can fall before the test fails on that date. The smallest of the ten is the break-even earnings fall, and the quarter it belongs to is the tightest quarter, usually the step-down and usually inside a year the plan calls good. Then the company's own worst year in ten is applied in full and the page names the quarters a lender would own. In the worked case a company with a full turn of room has 19.7 percent of earnings at the tightest quarter against a worst year that took 24, and the acquisition on the table does not break the covenant but takes the distance from 37 percent to 20. It stops on two halts: no one has read what the covenant counts, at what level, and when it steps, and no one has looked up how far the company's own earnings fell in the worst year of the last ten.

The casebooks these cases come from.

The pack reads nine sourced decisions through the framework. They are drawn from these casebooks, each one a set of verified records on a single decision type.

A verified record has passed a mechanical claim-versus-source check, a second model's read, and human approval. The count is what exists today, not a target.