Negotiating EBITDA and Financial Covenants in Middle Market Loan Agreements

Recording of a 90-minute premium CLE webinar with Q&A

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Conducted on Wednesday, October 23, 2013

Recorded event now available

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Course Materials

This CLE course will provide commercial finance counsel with a drill down on the uses and calculation of EBITDA in our evolving credit market. The panel will specifically identify common add-backs to EBITDA in standard middle market deals, as well as sponsored private equity deals.

Description

Negotiating the definition of EBITDA and related financial covenants is a critical part of any leveraged finance deal and one clients are intensely focusing on.

As a non-GAAP concept the definition of EBITDA has evolved over the years with a trend towards more permissive add-backs and more complex formulations. Understanding the basics of EBITDA and negotiating financial covenants is something sophisticated clients expect from counsel.

EBITDA impacts financial covenants and mandatory prepayments and, depending on the transaction, may also increase basket sizes or alter the applicable margin. Our experienced panel will provide a thorough review of these concepts, as well as calculating EBITDA in the context of acquisitions and “stub” periods.

Listen as our authoritative panel of corporate finance attorneys discusses EBITDA calculations and uses in middle market and leveraged deals.

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Outline

  1. EBITDA — the basic calculation
    1. The income statement
    2. Net income vs. EBITDA vs. free cash flow
  2. Why EBITDA?
    1. Possible alternative financial metrics (cash flow, net income, revenue)
    2. The business rationale for using EBITDA
  3. EBITDA add-backs
    1. What is an add-back?
    2. Standard middle market/leverage finance add-backs
    3. Standard sponsored deal add-backs to EBITDA
    4. The negotiated add-backs
  4. Uses of EBITDA in the loan agreement
    1. Financial covenants
      1. EBITDA covenant/leverage ratio/coverage ratios
    2. Mandatory prepayments
      1. Excess cash flow sweeps
    3. Determining covenant baskets
      1. Builder baskets
    4. Determining applicable margin
      1. Interest rate matrix
  5. Increasing EBITDA
    1. Equity cures
    2. Capital contributions/preferred equity
  6. Calculating EBITDA for acquisitions and “stub” periods
    1. Pro-forma EBITDA
    2. Annualization and plug numbers

Benefits

The panel will review these and other key questions:

  • What is the market currently accepting?
  • What are the differences, with respect to add-backs, between “big sponsor” deals and the middle market?
  • At what stage in the documentation process should EBITDA be negotiated?

Following the speaker presentations, you'll have an opportunity to get answers to your specific questions during the interactive Q&A.

Faculty

Spader, Jay
Jay Spader
Shareholder
Brownstein Hyatt Farber Schreck

Mr. Spader has considerable work experience representing both borrowers and lenders in a wide variety of complex...  |  Read More

Mark M. Oveson
Mark M. Oveson
Shareholder
Brownstein Hyatt Farber Schreck

Mr. Oveson represents a range of clients, including traditional banks, asset-based lenders, mezzanine lenders, special...  |  Read More

Joanne Baginski, CPA, CMAA
Joanne Baginski, CPA, CMAA
Partner
Ehrhardt Keefe Steiner & Hottman

Ms. Baginski leads the firm’s Transaction Services Group. With over 20 years of public accounting and consulting...  |  Read More

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