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Managing bank debt covenants

I have a CFO search where the client's requirements for experience managing compliance with bank debt covenants seems to be a major hurdle. Clearly an important task, but setting up the systems and discipline for monitoring compliance seems straightforward. What am I missing. The client is a $100 Million, PEG owned manufacturer. Your thoughts and advice is appreciated.


Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

What is the objection that the client is making to those who you've presented? I agree, monitoring a covenant should be simple.

The covenant is spelled out in the contract. Management develops a system that monitors and reports. This draft is presented to the Bank for approval and sign-off of the system and reports, and then its just follow-through... Periodic reports to the bank.

What else could they want? Outside audits (probably already part of the covenants)... interim audits, internal audits, a CCO?

Ernie Humphrey CTP
Title: VP, Thought Leadership
Company: Stampli
LinkedIn Profile
(VP, Thought Leadership, Stampli) |

There is actually software that automates the monitoring of bank covenants. Whether or not they are complicated depends on who is extending the credit, the credit rating of the company borrowing money (or has a revolving credit line in place), and the negotiating skills of the person at the company accessing credit.

Here is a link to a webinar recording that speaks to the technology out there to help companies more effectively monitor covenant compliance risk.

Jim Schwartz
Title: Corporate financial advisor
Company: Wabash Financial Strategies
(Corporate financial advisor, Wabash Financial Strategies) |


I doubt you are missing anything. More than likely this was a perceived weakness or failure of the departed CFO. As a result, the PE owners have pushed the pendulum to the opposite side.

If you have a strong candidate who lacks this direct experience, focus on something that could be equivalent. One example might be management, tracking and reporting of SOx information and certifications, which most senior financial people have performed or administered over the last decade. Further, the strong candidate, lacking this specific requirement, will be prepared to discuss availability, cost, reliability and ease of implementation of one or more software solutions such as Ernie mentions.

Mike Tankersley
Title: Senior Counsel
Company: Bracewell & Giuliani LLP
(Senior Counsel, Bracewell & Giuliani LLP) |

Where I have seen CFO's mess this up is in their failure to accurately model near-term and longer-term future performance of the company, to develop appropriate sensitivity analyses and to anticipate bumps in the business. Particularly in cases where the covenants are on the tight side or the business is volatile. Resulted in them passively allowing business or financial decisions to be made, or situations to fester unaddressed, that pushed the company over the line on a covenant a quarter or two down the road. Managing these issues well requires a fair amount of business judgment that may not have developed in someone working their way up the ranks in the controller's office.


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