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Depends on the covenant you are testing
Read the loan agreement
Cushion would be the delta between the metric you’re calculating and the defined covenant ratio
its almost always EBITDA and the cushion is actual EBITDA less the hurdle amount. For total leverage; E.g. $30mil debt, 3:1 total leverage requirement = 10mil EBITDA hurdle/minimum. If actual company EBITDA is $15mil, the cushion is $5mil.
Ok so basically how much wiggle room they have before they fail the covenant
Total leverage ratio
Usually total debt over EBITDA... I could be wrong but definitely read the debt agreement as they usually spell it out and some want it calculated a special way
Yeah that gives me the ratio but how do I get the cushion