Our story last week of the hundred-year old fruitcake captured readers’ attention. Tributes to this underappreciated treat poured into the Lead Left mailbox. “It’s believed there’s only one fruitcake in existence,” one friend wrote. “It gets passed around during the holidays from family to family. Now we all know where it came from.”
There’s also been a fair amount of passing around in the leveraged loan market. Like the fruitcake, the same covenant-lite package is being incorporated for almost every borrower. Regardless of size.
As we detailed earlier this year in our special series, Why Covenants Matter [link], $50 million has been the unofficial bright ebitda line between middle market companies and their larger, more liquid issuers that have historically earned incurrence-only tests.
But thanks to the proliferation of pro forma adjustments and add-backs that are now routinely part of ebitda calculations, what masquerades as a $50 million company may actually be significantly smaller before all the analytic gymnastics.
Why the ebitda fuss?