[{"data":1,"prerenderedAt":230},["ShallowReactive",2],{"blog-\u002Fblog\u002Fdebt-covenant-monitoring":3,"blog-related-\u002Fblog\u002Fdebt-covenant-monitoring":201},{"id":4,"title":5,"audience":6,"body":10,"cluster":163,"conversionGoal":164,"cornerstone":165,"date":166,"description":167,"draft":165,"extension":168,"factCheckedAt":169,"faq":170,"featured":165,"language":169,"meta":180,"minRead":181,"navigation":182,"order":183,"originalAsset":169,"path":184,"pillar":185,"primaryKeyword":186,"publicationOrder":187,"relatedProject":169,"releaseScope":188,"reviewCycle":189,"reviewMethod":190,"reviewStatus":191,"reviewedAt":166,"reviewedBy":192,"searchIntent":193,"seo":194,"sources":169,"stem":195,"tags":196,"type":199,"updated":166,"__hash__":200},"blog\u002Fblog\u002Fdebt-covenant-monitoring.md","Debt Covenant Monitoring in Treasury",[7,8,9],"treasurer","cfo","financial-controller",{"type":11,"value":12,"toc":155},"minimark",[13,27,35,40,43,46,65,68,72,80,83,87,90,104,107,111,131,134,137],[14,15,16,20,21,26],"p",{},[17,18,19],"strong",{},"A debt covenant is a test the lender wrote into the facility, and monitoring it means knowing the result before the lender does."," The ",[22,23,25],"a",{"href":24},"\u002Fblog\u002F13-week-cash-flow-forecast","13-week forecast"," becomes the document the board lives by when headroom is thin. This page is the machinery under that sentence: which test, whose number, how early.",[14,28,29,30,34],{},"It sits next to ",[22,31,33],{"href":32},"\u002Fblog\u002Fcorporate-funding-and-credit-facilities","corporate funding",". Funding is how the facility was obtained. Monitoring is how you keep it.",[36,37,39],"h2",{"id":38},"one-definition-not-the-management-account","One definition, not the management account",[14,41,42],{},"The failure mode is using the number you already have. Net debt in the monthly pack is not necessarily net debt in the agreement. The agreement may add back a lease the pack treats as debt, ignore cash that is trapped, or measure EBITDA on a frozen set of adjustments. A treasury that reports \"2.4 times, limit 3.5 times\" from the management accounts, when the agreement's 2.4 is a different 2.4, has not monitored the covenant. It has monitored a cousin of it.",[14,44,45],{},"So the working paper has, for each test:",[47,48,49,53,56,59,62],"ul",{},[50,51,52],"li",{},"The clause. Not a paraphrase filed somewhere else. The clause.",[50,54,55],{},"The definition of every term in it, including what is excluded.",[50,57,58],{},"The source system for each input, and the person who extracts it.",[50,60,61],{},"The frequency the agreement requires, and the frequency you actually run, which should be stricter.",[50,63,64],{},"The headroom, in the agreement's unit, and the date of the figure.",[14,66,67],{},"A test you cannot recompute from that sheet is a test you will mis-state under pressure.",[36,69,71],{"id":70},"headroom-is-a-forecast-not-a-historical-ratio","Headroom is a forecast, not a historical ratio",[14,73,74,75,79],{},"The reported covenant is backward-looking. The useful one is the same test run on the forecast. A quarter that will breach in week nine is not saved by a certificate that was true at the last reporting date. The ",[22,76,78],{"href":77},"\u002Fblog\u002Fliquidity-escalation-framework","liquidity escalation framework"," is what you open when the forecast crosses a line you set inside the contractual one. The contractual line is the breach. Your internal line is how you avoid arriving there by surprise.",[14,81,82],{},"What the escalation is allowed to do — delay a dividend, draw the committed facility, stop a discretionary payment — has to be decided before the week it is needed. A covenant monitor that only produces a slide has not changed anyone's authority.",[36,84,86],{"id":85},"the-certificate-is-the-control-and-so-is-the-calendar","The certificate is the control, and so is the calendar",[14,88,89],{},"Most agreements do not ask for a live dashboard. They ask for a certificate, signed, on a date. The operating failure is missing the date, or signing a certificate nobody recomputed. The calendar is therefore part of the control:",[47,91,92,95,98,101],{},[50,93,94],{},"Who prepares.",[50,96,97],{},"Who recomputes independently. The preparer and the signer are not the same person.",[50,99,100],{},"When it leaves the building.",[50,102,103],{},"Where the signed copy and the working paper are kept, together.",[14,105,106],{},"A lender waiver is not a victory. It is a new agreement, usually with a fee and a tighter test. Getting one because the certificate was late is a worse conversation than getting one because the ratio moved and you called early.",[36,108,110],{"id":109},"what-i-left-out-on-purpose","What I left out, on purpose",[47,112,113,119,125],{},[50,114,115,118],{},[17,116,117],{},"Typical ratios and typical headroom."," They are not typical. They are negotiated. Publishing a number here would be a fiction.",[50,120,121,124],{},[17,122,123],{},"Accounting standards for classification of the debt"," once a covenant is breached. That is a technical determination for the reporting period. Treasury's job is to know the breach is coming. Accounting's job is what the balance sheet then says.",[50,126,127,130],{},[17,128,129],{},"Equity cures and negotiation tactics."," Legal advice, and specific to the draft in front of you.",[14,132,133],{},"Know the clause. Recompute it on the forecast. Tell someone while there is still a week to act.",[135,136],"hr",{},[14,138,139],{},[140,141,142,143,146,147,150,151,154],"em",{},"See also ",[22,144,145],{"href":32},"corporate funding and credit facilities",", ",[22,148,149],{"href":24},"the 13-week cash flow forecast"," and ",[22,152,153],{"href":77},"the liquidity escalation framework",".",{"title":156,"searchDepth":157,"depth":157,"links":158},"",2,[159,160,161,162],{"id":38,"depth":157,"text":39},{"id":70,"depth":157,"text":71},{"id":85,"depth":157,"text":86},{"id":109,"depth":157,"text":110},"liquidity-risk","topic-hub",false,"2026-10-27","How treasury watches the tests in a facility agreement: one definition per covenant, one source for the number, and a headroom report before the breach.","md",null,[171,174,177],{"question":172,"answer":173},"What is a debt covenant?","A promise in a loan or facility agreement. The company agrees to keep a financial measure on the right side of a line the lender wrote down — often a leverage test, an interest-cover test, or a minimum liquidity test — and to tell the lender when it does not. The exact test, the definitions, and what happens on a breach are in that agreement. They are not a market standard you can look up.",{"question":175,"answer":176},"Who should monitor covenants?","Someone who sees the number before the board pack does. Treasury usually owns liquidity and the facility, so treasury often runs the calendar. Accounting owns the reported figures the test is built from. If each waits for the other, the first person to know about a tight quarter is the lender.",{"question":178,"answer":179},"What is covenant headroom?","The distance between the latest figure and the line in the agreement, measured in the agreement's own definition, not in the management account's nearest cousin. Headroom of 'about fine' is not headroom. A forecast that shows the line being crossed is a liquidity event, not a disclosure footnote.",{},4,true,9.6,"\u002Fblog\u002Fdebt-covenant-monitoring","cash-and-liquidity-management","debt covenant monitoring",260,"Operating practice. Covenant definitions live in each facility agreement. This page does not state a typical ratio, a typical headroom, or a lender's remedy. Those are contractual. No facility agreement was used as a source.","annual","editorial","reviewed","Tan Gravam","informational",{"title":5,"description":167},"blog\u002Fdebt-covenant-monitoring",[197,163,198],"treasury","governance","text","tYDF7awzc7I4Ns9ajvqlUDxBWyDRF2OC6kuXCiRiz_g",{"related":202,"bridge":215,"next":219,"guide":223,"place":226},[203,207,211],{"path":204,"title":205,"description":206},"\u002Fblog\u002Fintercompany-netting","Intercompany Netting: How It Works","Intercompany netting offsets what group entities owe each other so only net positions settle, cutting payments, FX and fees. Bilateral vs multilateral netting.",{"path":208,"title":209,"description":210},"\u002Fblog\u002Fmanaging-surplus-cash","Managing Surplus Cash: Short-Term Investment Basics","Putting surplus cash to work safely, governed by a policy that ranks security, then liquidity, then yield. The cardinal rule of corporate cash investment.",{"path":212,"title":213,"description":214},"\u002Fblog\u002Fmoney-market-funds-for-corporate-treasury","Money Market Funds for Corporate Treasury","Money market funds pool short-dated, high-quality instruments to give treasury same-day liquidity and a yield on cash — inside policy, not chasing return.",{"path":216,"title":217,"description":218,"specific":165},"\u002Fblog\u002Fai-workflow-teardown-cash-forecasting","AI Workflow Teardown: Cash Forecasting","A corporate cash forecast, taken apart: where the elapsed time really sits, what stays deterministic, what AI genuinely does, and what a named human decides.",{"path":220,"title":221,"description":222},"\u002Fblog\u002Ftrapped-cash-and-cash-repatriation","Trapped Cash and Cash Repatriation","Trapped cash is money the group owns and can see but can't freely move to where it's needed — here's why it gets stuck and how treasury frees it.",{"slug":185,"name":224,"total":225},"Corporate Cash & Liquidity Management",34,{"label":227,"position":228,"total":228,"hub":229},"Liquidity Risk",8,"\u002Ftopics\u002Fcash-and-liquidity-management#cluster-liquidity-risk",1793124392116]